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Empirical Analysis on the Relationship Between Beijing Industrial Structure Adjustment and Economic Growth

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There is a close relationship between industrial structure adjustment and economic growth. Using panel data of Beijing economy between 1978 and 2012, this paper aims to examine the relationship between industrial structure adjustment and economic growth of Beijing. The empirical results indicate that the rationalization and upgrading of the industrial structure have a positive effect on Beijing’s economic growth. At last, the paper puts forward some specific policy recommendations to promote industrial structure adjustment and the economic growth of Beijing.
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   - 29 - www.ivypub.org/msr Management Science and Research June 2014, Volume 3, Issue 2, PP.29-33 Empirical Analysis on the Relationship between Beijing Industrial Structure Adjustment and Economic Growth Da Deng, Kai Hu, Shanbing Chen    Business School, China University of Political Science and Law, Beijing, 102249, China #Email: dengdadengda@sina.com Abstract There is a close relationship between industrial structure adjustment and economic growth. Using panel data of Beijing economy  between 1978 and 2012, this paper aims to examine the relationship between industrial structure adjustment and economic growth of Beijing.   The empirical results indicate that the rationalization and upgrading of the industrial structure have a positive effect on Beijing ’ s economic growth. At last, the paper puts forward some specific policy recommendations to promote industrial structure adjustment and the economic growth of Beijing. Keywords: Industrial Economics, Industrial Structure, Economic Growth, Beijing 1   I NTRODUCTION In the process of economic growth, the industrial structure adjustment is an eternal topic. Since the reform and opening up, the economic growth and industrial structure adjustment of Beijing have made tremendous progress. Under this condition, we establish the model of relationship between industrial structure adjustment and economic growth then make empirical analysis and make some suggestions according to the paper. Researches on this topic are concentrated on developed countries. Kuznets argues that economic growth will lead to the adjustment of industrial structure, and the improvement of labor productivity and technological innovation are the main factor causing the economic growth. [1]  Contrary to the view of Kuznets, Rostow thinks that the adjustment of industrial structure give rise to economic growth. He points out that the modern economic growth is essentially a sector process, without which we will not be able to find the real reason why economic growth. [2] Chenery finds that the adjustment of industrial structure has an important impact on economic growth by using the statistical method. He emphasizes that the process of industrial structure adjustment is in fact the process of economic growth. [3] Domestic studies about this topic appear only about thirty years. Zhou, Z.Z. argues that while the capital, labor are the main production factors in the process of economic development, the rational industrial structure can affect the output efficiency of these production factors. [4]  Liu, W. stresses that in the industrialization process, the adjustment of industrial structure is an inevitable phenomenon. [5]  Gan, C.H., Zheng, R.G., Yu, D.F. think that the rationalization of industrial structure has higher impact on economic growth than the upgrading of industrial structure. The rationalization of industrial structure is beneficial for curbing economic fluctuation, but the upgrading of industrial structure is an important factor to cause the economic fluctuation. [6] From the above studies, we find that the study about industrial structure adjustment and economic growth has been a focus of attention. However, since the study on this topic has just appeared about thirty years in China, we still have not yet formed authoritative opinions or theories. Therefore, this paper will enrich the research on this topic. The rest of the paper is organized as follows. The methodology and data are described in section 2 and section 3 demonstrates an empirical test. In Section 4, we conclude with a discussion of statistical and empirical results with  policy implications.   - 30 - www.ivypub.org/msr 2   D ATA AND M ETHODOLOGY 2.1 Data This paper uses data of three industries according to “ Industrial classification for national economic activities ” . Data are gathered from “ Beijing statistical yearbook  ” . This database contains GDP and employment number of Beijing from 1978 to 2012, which provides srcinal data we need for our study. 2.2 Measurement of the Rationalization of Industrial Structure The paper undertakes a study of the rationalization of industrial structure by means of the Theil index, which had  been used in the paper written by Gan,C.H., Zheng,R.G., Yu,D.F. The generalized formula for Theil index is: TL= ∑ ( Y  Y )ln( Y  LiYL ⁄ ) i=1  (1) Where, L denotes employment number of all industries; Y refers to GDP; Li stands for employment number in industry i; Yi means GDP of industry i; i can be 1 or 2 or 3, represents the three industries. The basic idea of Theil index is that under the conditions of perfect competition, the productivity of three industries is the same, so the Theil index is equal to zero. When Theil index is equal to zero, it means that the industrial structure is reasonable, the Theil index deviates from zero more far, the industrial structure is more unreasonable. The Theil index of Beijing is calculated according to formula (1). As we can see from table 1, the Theil index gradually decreased from 1978 to 2012, which suggests that the industrial structure of Beijing tends to be rational. TABLE 1.  THE THEIL INDEX OF BEIJING FROM 1978  TO 2012 year TL year TL year TL year TL 1978 0.2527 1987 0.0396 1996 0.0313 2005 0.0384 1979 0.2341 1988 0.0217 1997 0.0390 2006 0.0369 1980 0.1975 1989 0.0315 1998 0.0488 2007 0.0370 1981 0.1655 1990 0.0194 1999 0.0592 2008 0.0373 1982 0.1252 1991 0.0216 2000 0.0630 2009 0.0376 1983 0.0999 1992 0.0205 2001 0.0711 2010 0.0384 1984 0.0844 1993 0.0117 2002 0.0696 2011 0.0329 1985 0.0633 1994 0.0166 2003 0.0527 2012 0.0311 1986 0.0552 1995 0.0213 2004 0.0368 -- -- 2.3 Measurement of the Upgrading of Industrial Structure The modern economy is moving from a manufacturing economy to a service-oriented economy. In this paper, we use the ratio of the output of the third industry and the second industry as a measure of the upgrading level of industrial structure. The greater the index is, the more important of the third industry is in the local economy. The index is computed as follows: TU= Y 3 Y 2  (2) Where, Y 3 =the output value of the third industry; Y 2 = the output value of the second industry. TABLE 2.  THE INDEX OF UPGRADING LEVEL OF INDUSTRIAL STRUCTURE   year TU year TU year TU year TU 1978 0.3331 1987 0.6561 1996 1.3980 2005 2.3953 1979 0.3484 1988 0.6853 1997 1.5583 2006 2.6632 1980 0.3883 1989 0.6550 1998 1.7357 2007 2.8833 1981 0.4338 1990 0.7412 1999 1.8661 2008 3.1895 1982 0.4483 1991 0.8977 2000 1.9832 2009 3.2141 1983 0.5119 1992 0.9018 2001 2.1754 2010 3.1286 1984 0.5442 1993 0.9841 2002 2.3867 2011 3.2943 1985 0.5568 1994 1.0827 2003 2.3101 2012 3.3672 1986 0.6029 1995 1.2211 2004 2.2078 -- -- The index is calculated according to formula (2). As can be seen from table 2, the upgrading level of Beijing   - 31 - www.ivypub.org/msr industrial structure increased year by year, it reached the highest level in 2012 since the reform and opening up. 3   I NFLUENCE OF INDUSTRIAL STRUCTURE ADJUSTMENT TO THE ECONOMIC GROWTH In order to clarify the relation between the industrial structure and the economic growth, this paper makes a regression described in formula (3). LNGDP i  represents the economic growth, TL i  and TU i  represents the rationalization and upgrading level of Beijing`s industrial structure. LNGDP i =β 0 +β 1 TL i +β 2 TU i +u i  (3) In order to prevent the phenomenon of “ spurious regression ”  and make the analysis more effective, we conduct a series of tests on the data before making multiple regression analysis. 3.1 Unit Root Test TABLE   3.  THE RESULTS OF ADF UNIT ROOT TEST   Index t-Statistic Prob.* LNGDP -2.281027 0.4330 TL -4.132019 0.0150 TU -2.167623 0.4920 Test critical values: 1% level -4.262733 5% level -3.552969 10% level -3.209645 T ABLE 4.   T HE RESULTS OF ADF  UNIT ROOT TEST AFTER 2  ND DIFFERENCE   Index t-Statistic Prob.* D(LNGDP, 2) -3.869613 0.0003 D(TL, 2) -4.562174 0.0001 D(TU, 2) -3.820557 0.0004 Test critical values: 1% level -2.644312 5% level -1.952472 10% level -1.610221 From table 3, the test results cannot reject the existence of the unit root, so the index series is non-stationary. After making second difference to srcinal data, we get new results in table4. It can be seen from table 4, the ADF values of D (LNGDP, 2), D (TL, 2) and D (TU, 2) were less than the critical value, and the data after making second difference is stationary, so we can take a co-integration test next. 3.2 Co-Integration Test TABLE   5  JOHANSEN CO - INTEGRATION TEST   Hypothesized No. of CE(s)   Eigenvalue Trace Statistic   0.05 Critical Value Prob.**  None * 0.613035 46.91594 24.27596 0.0000 At most 1 * 0.374796 15.58505 12.32090 0.0137 At most 2 0.002594 0.085699 4.129906 0.8100 * denotes rejection of the hypothesis at the 0.05 level It can be seen from table 5, the t value of co-integration test is greater than the critical value of 0.05, which implies that there is a co-integration relationship between variables. Grainger  ’ s theorem shows that: there is at least one direction of the causal relationship between variables with co-integration relationship. 3.3 Granger Causality Test It can be seen from table 6, there is a one-way causal relationship between TL and LNGDP , that the rationalization of industrial structure can promote economic growth, but economic growth can not promote the rationalization of industrial structure. There is a two-way causal relationship between TU and LNGDP , that economic growth can cause the upgrading of industrial structure, meanwhile the upgrading of the industrial structure can also cause   - 32 - www.ivypub.org/msr economic growth. TABLE   6.  GRANGER CAUSALITY TEST   Null Hypothesis: Obs F-Statistic Prob. TL does not Granger Cause LNGDP 35 9.55289 0.0041 LNGDP does not Granger Cause TL 3.99565 0.0544   TU does not Granger Cause LNGDP 35 9.48869 0.0042 LNGDP does not Granger Cause TU 9.05223 0.0053   TU does not Granger Cause TL 35 2.30085 0.1395 TL does not Granger Cause TU 1.02563 0.3191   3.4 Multiple Regression Analysis According to the analysis of table7, we obtain the following regression equation: LNGDP=5.2468-3.4523TL+1.4736TU (4) As it shows in Table 7, the regression coefficients of TL is -3.4523, it means the drop of one unit of TL, the level of economic growth will rise by 3.4523 percentage points. The coefficient of TU is 1.4736, it means change of one unit of TU, the corresponding changes will happen in the level of economic growth by 1.4736 percentage points. The empirical results indicate that the industrial structure adjustment has a positive effect on economic growth. TABLE 7.  MULTIPLE REGRESSION ANALYSIS   Variable Coefficient Std. Error t-Statistic Prob. C 5.246819 0.103421 50.73701 0.0000 TL -3.452291 0.535716 -6.44439 0.0000 TU 1.473579 0.043321 34.01254 0.0000 R-squared 0.979545 Mean dependent var 7.197410 Adjusted R-squared 0.978257 S.D. dependent var 1.646925 S.E. of regression 0.242851 Akaike info criterion 0.089091 Sum squared resid 1.887282 Schwarz criterion 0.222416 Log likelihood 1.440935 Hannan-Quinn criter. 0.135112 F-statistic 765.8211 Durbin-Watson stat 0.350231 Prob(F-statistic) 0.000000 4   C ONCLUSION AND S UGGESTIONS   The results reveal that the rationalization and upgrading of industrial structure could promote the economic growth, the economic growth could promote the industrial structure upgrading, but it does not necessarily promote the rationalization of industrial structure. Since the industrial structure adjustment of Beijing has achieved a relative high level, the industrial structure effect on the economic growth will be reduced, and Beijing`s economic growth will be more dependent on technological progress and innovation in the future. In order to further promote the adjustment of Beijing`s industrial structure and the economic growth, related measures should be taken by the government. The first is to encourage innovation to create new social demand and new economic growth areas. The second is based on the economic integration of jing-jin-ji area to broaden the space of economic growth of Beijing. The third is to further adjust the layout of first industry and to develop urban modernistic agriculture. The fourth is that we must bring about an industrial pattern with high and new technology industries as the leader, basic and manufacturing industries as the kingpin and the service industry developing in all areas. The last is to develop cultural and creative industries, modern service industry, to optimize the third industrial structure. R EFERENCES   [1]   Simon Smith Kuznets. Economic growth of nations. Belknap Press of Harvard University Press, 1971. [2]   Walt Whitman Rostow. The Stages of Economic Growth. Cambridge University Press, 1960. [3]   Hollis B. Chenery. Industrialization and growth: a comparative study. Oxford University Press, 1986. [4]   Zhou,Z.Z. Structural effects in modern economic growth. Shanghai People Press, 1995.

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Jul 28, 2017
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