SOME CAVEATS IN MODELLING TECHNICAL PROGRESS AND INVESTMENT: THE CASE OF CHINA

Since the early 1990s, the number of studies using neoclassical models to understand the Chinese economy has mushroomed. In this paper, we review two examples of estimation of the rate of technical progress and one attempt at modelling investment. We identify their shortcomings and the problems with the alleged policy implications. We show that econometric estimation of neoclassical models may result in apparently sensible results for misinformed reasons. We conclude that modelling the Chinese economy requires a deeper understanding of its inner workings as a transition and as a developing economy.