"Growth of Hong Kong Before and After Its Reversion to China: The China Factor"

Yun-Wing Sung,
Chinese University of Hong Kong
Kar-yiu Wong, University of Washington

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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.

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This page was last revised on January 24, 2000.