ROLE OF ECONOMIC STRUCTURAL ADJUSTMENT FOR LONG-TERM ECONOMIC STABILITY IN CHINA: ESTIMATION BASED ON VARIANCE DECOMPOSITION

Based on the variance decomposition method of Eggers and Ioannides, the sources of long-term stability of the Chinese economy since the mid-1990s are estimated and the potential influence of structural optimization is predicted. Results show that: (i) the contribution of industrial structural adjustment was a negative 46.38%; and (ii) if the share of the expenditure structure was adjusted to the average level in the early period, the contribution of structural optimization would be approximately 38.25%. Moreover, it is believed that a reasonable economic structure can be achieved only through the implementation of a development strategy that takes comparative advantage into consideration.