Abstract
The aim of this paper is to provide a comparison of the dominant causes and consequences of high-pitched economic growth in China for the 1980s and 1990s and Japan for the 1950s and 1960s, and in doing so, to clarify the characteristics of the Chinese economy.
Main causes of this phenomenon in China were rapid technological progress and prosperous capital formation. According to our estimation growth of total factor productivity in China's manufacturing sector is so rapid as in Japan. This finding should be considered as a critique to the statement by Paul Krugman to stress low rate of technological progress in the Asian economies. Dissimilarity with Japan exists in the fact that rapid technological progress in China is largely dependent on foreign direct investment, while this type of investment was negligible in Japan. By estimating investment function in China's non-agricultural sector we found that investment is closely related with rate of return on capital. This result, which was found in Japan also, is contrasted with the usual notion to emphasize irrational investment behavior.
Despite a sharp rise in per capita GDP in both countries, the substance of economic growth differed greatly. Firstly, unemployment rate rose dramatically and labor surplus still exists in China, while the rate decreased and labor surplus disappeared in Japan. Secondly, income distribution has been deteriorating significantly in China, while improved in Japan. The author explained these dissimilarities by a low rate of non-agriculture in total employment and a relatively low dependence on this sector in creating employment opportunities. In other words a difference in the degree of economic development was a decisive factor for the aforementioned dissimilarities.
