Explaining Industrial Growth in Coastal China: Economic Reforms ... and What Else?

Abstract

In the 1980s China experienced “an explosion of pent-up entrepreneurship” facilitated by wide-ranging, although often unorthodox, economic reforms. This article uses data on the output of 23 industrial sectors in seven coastal regions (provinces and counties) over the period 1985 to 1989 to study the correlates of growth. Although industry-specific feature—the degree of specialization and competition—had some influence on growth, much of the action came from region-specific influences and regional spillovers. Regional influences included the open-door policies and special economic zones that successfully attracted investments from overseas Chinese to particular locations. Existing regional strengths, especially high-quality human capital and infrastructure, also contributed to growth. The results illuminate the interplay between conditions conducive for growth—for example, the contribution of foreign expertise is greatly enhanced by available human capital. China made judicious use of the advantages of backwardness by targeting areas that were less developed and less encumbered by the legacy of existing institutions, although it was fortunate in this regard that the backward regions were in close proximity to Hong Kong and Taiwan (China). Important also was the transmission of growth impulses across the provinces and counties, possibly through prereform cadre and administrative networks.

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