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Abstract
This paper discusses and estimates how
Hong Kong’s economic growth in the past seventeen
years may have been affected by its relationship with
China, and how the China factor may change after the
reversion of Hong Kong to China in 1997. The following
three linkages between the Hong Kong and Chinese
economies are focused in the paper: Hong Kong’s
direct investment in China, Hong Kong as an entrepôt of
the goods between China and the rest of the world, and
immigration from China. Using the results of Chou and
Wong (1997), the following factors of growth are
identified: accumulation of physical capital, expansion
of labour force, accumulation of human capital through
learning by doing and education, and technology transfer.
We argue that direct investment in China creates the
positive effect on growth by encouraging domestic
investment, but it also generates the negative effect due
to the detrimental impact of the accompanying shrinkage
of the local manufacturing sector on human capital
accumulation. While entropôt trade may have unimportant
effect on the growth of Hong Kong, migration of Chinese
people to Hong Kong could have negative growth effects as
these people tend to be unskilled workers and save less.
This paper then provides an analytical analysis of the
impacts of the reversion of Hong Kong on the
relationships between the two economies, and then
examines how the changes in these relationships may
affect future growth of Hong Kong.
Comments on this paper are most welcome.
Please send them to karyiu@u.washington.edu.
