China and the Export-Oriented Economic Growth Strategy

Macroeconomics emerged as a separate discipline in the first half of the 20th century. In addition to Keynesian cross-era masterpiece “General Theory”, which laid the theoretical framework of macroeconomic analysis, there is another important prerequisite: The great achievements obtained of economic statistics since 20th century.

One Method of calculation of the Gross Domestic Product is from a country’s total final demand for goods and services in a given period to measure the value of GDP.

Western macroeconomics generally believed that the total demand means the economy’s aggregate demand for goods and services. Economist Joseph E.Stiglits wrote in “Economics” that, the aggregate demand in the economy is the produced goods and services in the economy for all needs. (Joseph E.S, 2006)

In other words, calculating GDP by expenditure approach, four categories expenditure in actual economic life are added: including consumer spending, investment spending, government purchases of goods and services and net exports of goods and services.

Consumer spending

Consumer spending means that local residents purchase of final goods and services, which constitute the most important part of the total demand of a country. The household consumption of consumer is further divided into durable goods (such as color televisions, refrigerators, air conditioners,etc.), noon-durable consumer goods (such as food, fuel,clothing,etc.) and services (such as haircuts, medical care, education,etc.).

Investment spending

Investment expenditures including the purchases of new spending on capital goods, it’s fixed asset investment and business inventories to increase the expenditure. In which, investment in fixed assets consists of two parts, business fixed investment and residential investment.

Government Purchases of goods and services

Government purchases of products and services, including the government of current products and services, foreign production of goods and services purchased. For example, spending on national defense, infrastructure expenditures like building bridges and roads. It also includes transfer payments: social insurance, medical care, unemployment relief and welfare spending and the salaries of government workers.

Net exports of goods and services

Net exports of goods and services means the difference between exports minus imports.

2.1.2 Theory of Economic Growth

The Theory of Economic growth is the important issue of the whole economics research. From the classical economic growth theory to modern theory, forming a relatively complete regular pattern and empirical studies of economic growth factors.

Classical economic growth theory attempted to grasp all the essence of social economic growth process at any point of time. The economists such as Adam Smith, Ricardo, Mall Muse and Mill are the representatives in this field.

The modern economic growth theory is based on the classical theory of economic growth, focus on the use of fewer dimensions and precise definition of economic variables on one aspect of economic growth. Establishing a formal model, like Harhold-DORMA economic growth model, Neoclassical growth model, New Keynesian growth theory, Techonological progress theory,etc.

Of all the theoretical studies about the sources of economic growth, the economic growth theory can be roughly divided into the neoclassical growth theory and the structuralist theory. Since Abulamo Katowice (1956),Solow (1957) and Denison (1962) and other pioneering research about the theories of economic growth, neoclassical theory has made considerable progress in measuring the growth factors. R.M.Solow (1957) pointed out in the one article that economic growth is the total growth process under the assumption of competitive equilibrium.

Also,R.M.Solow argued in 1987 that the Harrod-Domar model seemed unsound. If the condition for steady growth is that the savings rate equal the product of the growth rate of employment and a technologically-determined capital-output ratio, then a recipe for doubling the rate of growth in a labor surplus economy was simply to double the savings rate, perhaps through the public budget.

The structuralist theory is based on the significance of the structure variables in economic growth, making the neoclassical growth equation as a starting point, introducing the structural factors to explain the process of economic growth. Represented by Chenery, the structuralist theory point out that the economic growth is a non-equilibrium growth process.

Abhijit V. Banerjee and Esther Duflo¼ˆ2004¼‰showed extensive evidence that although Growth theory traditionally assumed the existence of an aggregate production function, the assumption of optimal resource allocation fails radically. The key fact is the enormous heterogeneity of rates of return to the same factor within a single economy, a heterogeneity that dwarfs the cross-country heterogeneity in the economy-wide average return.

There is another theory named “New Growth theory”, Joseph Cortright (2001) explain that New Growth Theory is a view of the economy that incorporates two important points. First, it views technological progress as a product of economic activity. Previous theories treated technology as a given, or a product of non-market forces. New Growth Theory is often called“endogenous” growth theory, because it internalizes technology into a model of how markets function. Second, New Growth Theory holds that unlike physical objects, knowledge and technology are characterized by increasing returns, and these increasing returns drive the process of growth.

2.1.3 Theory of Comparative Advantage

In Ricardo’s 1817 book, “On the principles of Political Economy and Ta