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March 03, 2012

Boosting GDP

We recently reviewed a study that indicated that doubling the broadband speed for an economy increases GDP by 0.3%. Also, an increase of broadband penetration of 10% increased GDP by 1%.

More important to boosting the GDP of a developing country are roads (transportation), electricity/ energy, clean water, sanitation and good agriculture. Infrastructure is examined as a catalyst for developing Africa (13 pages) Also, building economic growth from education is described here.

China's overall GDP increased by about 100 times in real terms from 1952 to 2009. China's per capita income increased by about 30 times.

There are far more impactful things that can be done for developing economies.

Deng’s economic reforms started in rural China. By 1983 they had resulted in the complete de-collectivization of agriculture and in annual income growth of more than 10 percent for most farmers, who then accounted for the bulk of the total population. The new system for agriculture, the “Household Responsibility System,” allowed individual farm families (on plots leased from the local village committee) to sell on the free market whatever they could produce in excess of their plan quota sold at the official government price. It was an extremely successful incentive-based system. Until the mid-1980s, rural incomes grew much faster than urban incomes. The reverse happened most years thereafter, and by 2010 average per capita urban incomes were more than 2.8 times as high as average per capita rural incomes, perhaps a world record.

The share of agricultural employment in China today is about one-third, roughly the same as in Japan in 1960 and South Korea in 1970. The migration of agricultural surplus labor to higher-productivity jobs will continue for at least another decade, supporting high economic growth for the country as a whole.

Here is a high level review of China's GDP from 1952 to 2009

1958-59 So-called "Great Leap Forward" devastated agriculture: result was falling GDP in 1960-62.




1963-66 Partial restoration of market economy in the countryside promoted faster growth of agriculture.

1967-68 Production undermined by the so-called "Great Proletarian Cultural Revolution", that was initiated by Mao in mid-1966 and effectively ended by People's Liberation Army intervention in 1968.

1969-70 High growth rates followed the restoration of order after the "cultural revolution".

1976 Widespread earthquakes, including the worst ever at Tangshan, hit industrial centres, while agricultural output was hit by drought; policy paralysis resulted from the anti-Deng campaign, followed by Mao's death and the arrest of the Gang of Four. GDP fell.

1978-1982 Smashing the communes and restoring family farming jacked up agricultural (especially grain) output.

1983-85 Double-digit real GDP growth accompanied the first wave of foreign investment into China, and non-state enterprises started to develop.

1989-91 Growth slowed after the government braked the overheating economy following an aborted effort at wholesale price reform in 1988 which resulted in panic buying and runaway inflation. Price stability was achieved by cancelling large fixed investment projects, slowing domestic demand. Foreign investment fell off after the Beijing Massacre of June 1989.

1992 Deng Xiaoping's Southern Tour at the beginning of the year massively boosted foreign direct investment inflows into coastal areas and started a wave of government investment in Shanghai. Record trade and GDP growth and inflation followed.

1993 Zhu Rongji appointed to rein in the overheating economy, this time more selectively than in 1989-91. Growth rates subsided gradually in subsequent years, producing a so-called "soft landing". During the 1990s, living standards continued to rise, as evidenced by the proliferation of consumer durables, especially among the urban population. Continuing FDI inflows helped boost foreign exchange reserves to record heights in the late 1990s.

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