Functional Distribution of Income and Economic Growth in the Chinese Economy, 1978-2007

This paper seeks to analyse the relationship between functional distribution of income, aggregate demand and growth in Chinese reform economy. For this purpose the Bhaduri-Marglin Model is used, stating the theoretical possibility of both profit-led and wage-led growth regimes. Subsequently, the principal literature on the evolution of factor's shares in China is reviewed. The statistical series for the period 1978-2007 are reconstructed in order to carry out our analysis of the relations between capital's share and investment, on one hand; and labour's share and consumption, on the other. Supported by the Model's preliminary estimations, it is argued that Chinese growth has been largely profit-driven. Finally, the implications are presented vis-a-vis concerning Chinese economic prospects.