Macroeconomic Factors and Economic Development: An Insight into China Economy Using ARDL Approach

Abstract

It is difficult to identify the factors that drive the macroeconomic growth of developing countries because of the social, infrastructural, and governance factors involved. To verify the existence of this connection, this study examines the macroeconomic variables that have influenced China's economy from 1979 to 2020, using data acquired from the world development indicators. Through the use of the ARDL bound model test, it is shown that China's economy is positively impacted by factors such as capital formation, government spending, foreign direct investment (FDI), exchange rate, human capital development, and trade openness over both the long and the short term. On the other hand, inflation has a detrimental impact on economic growth both in the long run and in the short run. Consequently, the real GDP per capita should be increased, human capital should be strengthened, trade should be reformed, and macroeconomic circumstances should be stabilized under fiscal and monetary policy. By enhancing human capital, and foreign direct investment, reforming government expenditures, and lowering inflation, China has the potential to achieve sustainable economic development. This study offers scholars and policymakers a fresh econometric examination of the primary macroeconomic elements that are contributing to the economy.