Institutional reform and economic growth of China: 40-year progress toward marketization

China has persevered its market-oriented economic transition since 1978. In this paper, we use the provincial-level NERI Index of Marketization from 1997 to 2014 and a panel data model to investigate the quantitative contribution of market-oriented reforms to China’s total factor productivity (TFP) and economic growth. Our results indicate that marketization reforms contributed 1.3 percentage points to China’s annual economic growth rate and accounted for 35 percent of the increase in TFP. This means that the institutional reforms significantly improved resource allocation. However, economic transition in China has not yet been completed and sustainability of future growth will depend on further market-oriented reforms.