The Impact of Institution to the Development of China Economy

Abstract

As a typical transition country, the economics growth of China is affected by many factors and institutional factors play a significant role among them. On the one hand, institutional change provides impetus for the rapid development of the economy. On the other hand, the rigid arrangements of the institution have hindered the further economic development. Based on the analysis of transaction cost, ownership and marketization in China, this paper selects the indicators of the three factors above in the period of 2000 to 2015 to form an institution index. It then set up a neoclassical growth model to calculate the contributions of different parts of institution change. It finds that comparing to the increase of capital, institution also plays an important role in the rapid development of the economy in China. Specifically, marketization has the largest impression on the growth of economy, followed by ownership reform and the reduction of transaction cost.