China’s economic importance in the world’s economy is difficult to overstate. By population it is the world’s largest and by gross domestic product (GDP) it trails only the United States. This dissertation addresses some of the most pressing questions pertaining to China’s rise onto the world’s economic stage. Composed of three chapters, the first is part of a broader question on how economic researchers should approach analyzing China’s economy from a methodological standpoint. Specifically, it asks if the tools used to study business cycles in developed countries can also be used to study China. Or is it the case that China is too “different” from developed economies? Co-authored with Nelson C. Mark, this chapter shows that standard business cycle models work as well for studying China as they do for Canada. However, the dimensions by which the tools succeed and fail are different between the two.
The second chapter, adapted from a co-authored paper with Steven Lugauer and Nelson Mark, studies the effect that changing demographic patterns have had on the household saving rate in China. China’s population composition from a very young to an older population has been dramatic from a sharp reduction in fertility rates following the initiation of government sponsored population programs such as the One Child Policy. At the same time, saving as a share of household income has steadily increased from 5 percent in the 1970s to over 27 percent by 2008. This chapter presents a quantitative model with life-cycle components and a changing age composition that account for nearly all of the increase in household saving.
Finally, the third chapter investigates the extent that economic reforms that removed barriers to entry by private businesses in 1992 can quantitatively account for China’s growth in total factor productivity (TFP). This chapter presents a model of both the private and state sectors which shows that entry by private businesses is limited to only the most productive due to imperfect access to financial markets. Thus, the 1992 reforms initiated aggregate TFP growth through the entry and expansion of exclusively the most productive private businesses.