Information Technology, Productivity and Economic Growth in China

This paper presents an empirical assessment of the “New Economy” in China, drawing upon the linkage between information technology (IT) and economic growth. The aim of this paper is to interpret China’s economic growth from a perspective which emphasizes IT as a factor in economic growth. While the explosive growth of IT investment in the developed economies and its contribution to GDP and labour productivity growth has already been extensively researched, there has been little research on China, which is one of the world’s largest IT markets. The primary objective of this paper is to examine the sources of China’s economic growth with particular emphasis on the contribution of IT capital for the period of 1984-2001. The paper addresses whether growth in China over this period can be explained by factor accumulation or technological progress. To account for the contribution from factor accumulation, the paper employs the neoclassical production function model that will segregate IT capital from other forms of capital as an input to production. With the introduction of IT capital, the paper attempts to reduce the possible “vagueness” and omission bias of total factor productivity (TFP) growth of the neoclassical model in analysing the sources of growth in China. In addition, a key contribution of this paper is the estimation of China’s IT capital stock, which has not been investigated previously. Preliminary empirical findings on the contribution of factor inputs to China’s economic growth in 1984-2001 suggest that IT capital contributes about 30% of the economic growth rate.