Between 1978 and 2004 China’s real GDP per capita grew at a rate of 8.16 percent per
year. Some of this growth can be attributed to increases in labor force participation.1
On a per worker basis, GDP still increased at a real rate of 6.96 percent, implying a
doubling of aggregate labor productivity every ten years and a quadrupling every
twenty years. This impressive growth performance accompanied two important
structural transformations.
The first, a fundamental feature of the economic development process, entailed
large-scale reallocation of labor from agriculture to manufacturing and services,
which pushed agriculture’s share of total employment from 69 to 32 percent
between 1978 and 2004. The second, unique to the transition process in former
socialist economies, involves the reallocation of labor and other resources
from state-owned enterprises (SOEs) to enterprises outside the state sector: over
the same period, the state sector’s share of nonagricultural employment fell from
52 percent to only 13 percent.
The primary objective of this chapter is to quantify the contributions of these two
transformations and of productivity growth within each sector to China’s overall
growth and to systematically examine the forces driving each of these momentous
changes. As will quickly become evident, this approach delivers a substantial
payoff in the form of unexpected outcomes and a new perspective on the interaction
among structural change, transition from socialism, and productivity growth
during the course of China’s long boom.
The first surprise comes from information on the annual growth of real output
per worker during 1978–2004. Our data show that labor productivity in China’s
nonagricultural sector grew only 4.65 percent per annum compared to 6.75 percent
in agriculture and 6.96 percent in the aggregate. The distinctly superior growth offarm labor productivity suggests that agriculture may have played a significant
role in China’s growth. Indeed, Young (2003) observes, “Despite the popular academic
emphasis on industry and exports, a deeper understanding of the success of
the world’s most rapidly growing economies may lie in the most fundamental of
development topics: agriculture, land and the peasant.”