Question

China was a majority agrarian country a generation ago. Only 1 in 5 Chinese lived in urban areas in 1980, whereas today about 60% of them live in urban areas. Upward mobility has been the hallmark of this process in the country, with nearly 400 million of Chinese people joining the rank of the middle class during this time period. Use an economic theory that you learned in this course i.e Harrod Domar Growth Model (AK), Solow Model or Lewis Model, making sure to outline the process in a detailed fashion.

Answer 1

The People's Republic of China had an appreciable rise in growth from poor to middle class rank. China's economic transformation is said to be 'luminous' in human history. It's all about the journey from a poor agricultural economy to an industrial economy.

What is the theory of urbanization?

Economic development is only possible if the country expands itself, introduces itself to the new technologies, adapting new labour- capital techniques of production.

In short, raising to a higher economic position which we called 'upward mobility'.

There are many theories, models, and concepts which can be directly related to China's growth. Here I am going to discuss three main concepts or models.

• The first one is by F. Harrod and Evsey Domar, which is a Keynesian model of economic growth. According to this model, growth depends upon two factors i.e., capital and investment; Productivity of capital and the measure of investment. Initially in the developmental process, there is said to be a high rate of productivity of capital because there is less investment and more savings. China had managed this efficiently. As high savings and capital both the terms had contributed to China's growth.
• The second one is by Robert Solow and Trevor Swan, it is a growth model in which Human capital is considered to be a most important factor contributing to growth. Here human capital can be referred to as Labour. As efficient labour will contribute a country to rising to a higher economic position. It also increases per capita income.

China again managed this efficiently. By public investment. According to one study, China converted low income groups to the ones where they can easily fulfil their basic needs, as capital stock was said to be high during 1978.

• Third and the most important which perfectly fit China's upward mobility model of growth is by Sir Arthur Lewis. In which there is a conversion of low productivity agriculture to High efficient industries. As earlier in China there were three quarters of the labour force in the rural areas. Now fallen to 40%. There was a rapid growth in china productivity because they mainly focused on exports (international trade). As exporting leads to easy availability to new technologies and inputs, which also lead to more competition, hence enhancing Growth.

    

This leads to upward mobility of the country. Hence we can say that these three growth models fit China's Growth models directly.