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 INTRODUCTION 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. - 29 www.ivypub.org/msr
2 DATA AND METHODOLOGY 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 original 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: Y
Y
Y
Li L
Y
TL=∑ni=1 ( i ) ln ( i⁄ )
(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. TABLE1. THE THEIL INDEX OF BEIJING FROM 1978 TO 2012
year 1978 1979 1980 1981 1982 1983 1984 1985 1986
TL 0.2527 0.2341 0.1975 0.1655 0.1252 0.0999 0.0844 0.0633 0.0552
year 1987 1988 1989 1990 1991 1992 1993 1994 1995
TL 0.0396 0.0217 0.0315 0.0194 0.0216 0.0205 0.0117 0.0166 0.0213
year 1996 1997 1998 1999 2000 2001 2002 2003 2004
TL 0.0313 0.0390 0.0488 0.0592 0.0630 0.0711 0.0696 0.0527 0.0368
year 2005 2006 2007 2008 2009 2010 2011 2012 --
TL 0.0384 0.0369 0.0370 0.0373 0.0376 0.0384 0.0329 0.0311 --
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=
Y3
(2)
Y2
Where, Y3=the output value of the third industry; Y2= the output value of the second industry. TABLE2. THE INDEX OF UPGRADING LEVEL OF INDUSTRIAL STRUCTURE
year 1978 1979 1980 1981 1982 1983 1984 1985 1986
TU 0.3331 0.3484 0.3883 0.4338 0.4483 0.5119 0.5442 0.5568 0.6029
year 1987 1988 1989 1990 1991 1992 1993 1994 1995
TU 0.6561 0.6853 0.6550 0.7412 0.8977 0.9018 0.9841 1.0827 1.2211
year 1996 1997 1998 1999 2000 2001 2002 2003 2004
TU 1.3980 1.5583 1.7357 1.8661 1.9832 2.1754 2.3867 2.3101 2.2078
year 2005 2006 2007 2008 2009 2010 2011 2012 --
TU 2.3953 2.6632 2.8833 3.1895 3.2141 3.1286 3.2943 3.3672 --
The index is calculated according to formula (2). As can be seen from table 2, the upgrading level of Beijing - 30 www.ivypub.org/msr
industrial structure increased year by year, it reached the highest level in 2012 since the reform and opening up.
3 INFLUENCE 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). LNGDPi represents the economic growth, TLi and TUi represents the rationalization and upgrading level of Beijing`s industrial structure. LNGDPi=β0+β1TLi+β2TUi+ui
(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 LNGDP TL TU Test critical values:
t-Statistic -2.281027 -4.132019 -2.167623 -4.262733 -3.552969 -3.209645
1% level 5% level 10% level
Prob.* 0.4330 0.0150 0.4920
TABLE4. THE RESULTS OF ADF UNIT ROOT TEST AFTER 2ND DIFFERENCE Index D(LNGDP, 2) D(TL, 2) D(TU, 2) Test critical values:
t-Statistic -3.869613 -4.562174 -3.820557 -2.644312 -1.952472 -1.610221
1% level 5% level 10% level
Prob.* 0.0003 0.0001 0.0004
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 original 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) None * At most 1 * At most 2
Trace 0.05 Eigenvalue Statistic Critical Value 0.613035 46.91594 24.27596 0.374796 15.58505 12.32090 0.002594 0.085699 4.129906 * denotes rejection of the hypothesis at the 0.05 level
Prob.** 0.0000 0.0137 0.8100
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 - 31 www.ivypub.org/msr
economic growth. TABLE 6. GRANGER CAUSALITY TEST
Null Hypothesis: TL does not Granger Cause LNGDP LNGDP does not Granger Cause TL TU does not Granger Cause LNGDP LNGDP does not Granger Cause TU TU does not Granger Cause TL TL does not Granger Cause TU
Obs 35 35 35
F-Statistic 9.55289 3.99565 9.48869 9.05223 2.30085 1.02563
Prob. 0.0041 0.0544 0.0042 0.0053 0.1395 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 C TL TU R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic)
Coefficient 5.246819 -3.452291 1.473579 0.979545 0.978257 0.242851 1.887282 1.440935 765.8211 0.000000
Std. Error t-Statistic 0.103421 50.73701 0.535716 -6.44439 0.043321 34.01254 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
Prob. 0.0000 0.0000 0.0000 7.197410 1.646925 0.089091 0.222416 0.135112 0.350231
4 CONCLUSION AND SUGGESTIONS 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.
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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. - 32 www.ivypub.org/msr
[5]
Wei Liu. Research on industrial structure in the process of industrialization. Renmin University of China press, 1995.
[6]
Gan,C.H.,&Zheng,R.G.,&Yu,D.F. The influence of Chinese industrial structure adjustment on the economic growth and fluctuation. Economic Research, 2011.
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Zhang,F.M. The Road of transformation. Taiyuan: Shanxi Education Press, 2011.
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Li,Y. Economic transformation through industrial restructuring. China Today, 2014.
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Xu,C.Y. The research of China’s industrial structure adjustment. Capital University of Economics and Business, 2010.
[10] Li,W. The Relationship Analysis between the Economic Growth and the Industrial Structure in Shandong Province. Science & Technology Information, 2012.
AUTHORS 1Da
Deng, Ph. D in management, Associate
Professor,
business
published, such as Project Management of Modern Cultural
China
Industry, Beijing, China Machine Press, 2004, Creative
University of Political Science & Law,
industries Under national innovation strategy, Beijing, Culture
Beijing,
and Art Publishing House, 2010
China.
Teach
school,
Principles
of
Economics, Modern Economic Theory and Project Management as undergraduate, graduate and MBA courses. Major Field of study is creative industries and industry economy. A large number of Research results have been
Kai Hu, master candidate, study on economics, business School, China University of Political Science and Law. Shanbing Chen, master candidate, study on regional economics, business school, China University of Political Science and Law.
- 33 www.ivypub.org/msr