STUDY ON CHINA’S ECONOMIC DEVELOPMENT FROM THE PERSPECTIVE OF STRONG SUSTAINABILITY

Abstract

Theoretical researchers and policy makers have been using both traditional production factors and relatively new production factors to explain the different growth rates in different countries and regions. However, as pollution becomes more serious, the ecological environment gradually becomes an important part of the national (regional) development strategy. Few scholars have laid their hands on energy and environmental factors in the study of China’s economic growth. On the contrary, they have frequently considered physical and human capital accumulation as the main sources of China’s economic growth. Thus, strong sustainability should attract more attention from researchers. This article attempts to shed light on the sources of China’s economy from the perspective of strong sustainability. Employing a Cobb–Douglas production function, this paper introduces environment pollution, as a key natural capital, and energy consumption into the economic accounting framework. We also introduce government intervention, financial structure, industrial structure and degree of openness into the framework of total factor productivity to examine the effectiveness of the Chinese government’s direct and indirect participation in the markets. Then, we use the long-term growth accounting equation of China to decompose its economic growth and to analyze the decomposition results dynamically. In addition, this paper analyzes the short-term change of China’s economic growth by using a VAR model. The results revealed three facts. First, we find an inverted U-shaped relationship between the degree of openness and the industrial structure and their marginal growth effects, a U-shaped relationship between the financial structure and its marginal growth effect and a negative relationship between the government intervention and gross domestic product growth. Secondly, China’s economic development approach was still extensive and unsustainable, and it should follow a model that relies more on total factor productivity and relies less on ecological factors. China’s economic growth mainly depended on physical capital and energy consumption, and environment pollution was also a necessary byproduct of economic growth, however, the contribution of human capital and total factor productivity were small. Last but not the least, in the short term, the total factor productivity was an important source of China’s economic growth.