Technology or Investment? An enquiry into the Chinese model of growth

This paper explores the relative contribution of different components to labor productivity growth - e.g. the role of capital investment versus increase in technical change - in 31 Chinese provinces over the period 2000-2010. It then investigates the connection between technical change and inflows of foreign direct investment. The results reveal that capital deepening - i.e. investment in fixed capital - has been the most prominent source of labor productivity growth mainly in poorer provinces, while richer provinces have benefited mostly from increase in technical change. Inflows of FDI are not associated to higher rates of productivity growth. Our results have implications for the sustainability of the current model of growth in China and the patterns of technological development.