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Relationship between the Service Sector and Economic Growth: Evidence from China

The rapid economic growth of China during the last four decades has reshaped the political and economic arena around the world. Under the leadership of Deng Xiaoping, China has realized sets of reforms towards modernization and opening the economy since 1978 and these reforms have helped China to become an economic giant. China’s economy is still growing today and a distinct growth pattern together with a complex economic system and the society of China draw interest from all over the world to research and understand what factors trigger such fast growth rates. In this study, the relationship between economic growth and two subsectors of the service sector, namely real estate and hotel & catering in China, is analyzed. The study uses quantitative methodology and time-series data acquired from secondary sources. The Autoregressive Distributed Lag Method (ARDL) in E-views 10 statistical software is utilized to analyze the data. The findings of the data analysis reveal that both sub sectors have a significant and positive impact on economic growth of China in both the long run and short run. The findings can be generalized and referred to the entire service sector and it can also be claimed that a positive relationship exists between the service sector and economic growth in China. This paper contributes to the existing literature on how real estate and hotel & catering sub sectors affect economic growth in China.