China＇s recent economic slowdown has provoked academic discussion on what the core driver should be to ensure sustainable and healthy economic growth. To answer this question, it is essential to analyze the resources allocation efficiency. Using the newly-developed spatial panel data model, this paper studies not only the direct efject of resources allocation on local economies, but also the spillover effects on the economies in other regions. We are then able to assess the actual effects of resource factors on China＇s economic growth, including labor force, fixed-asset investment （FAI） and technical progress. The conclusions are.＂ 1） during the past 13 years, the labor force has had an insignificant effect on all the three industries; 2） FAI has produced a prominent positive direct effect on secondary industry, but accompanied with even severer negative spillover effects which outweigh the positive ones; however, FAI has had significant direct and total effect on the tertiary industry,＂ 3） technical progress has significant effects on all the three industries. Therefore, the labor force is not the core driver of China＇s economic growth, and the demographic dividend is an invalid explanation for China＇s economic growth. Instead, fixed-asset investment remains the powerhouse of China＇s economic growth, not in the secondary industry but in the tertiary industry. All in all, technical progress is the core driver for healthy economic growth as well as the inevitable path to industrial upgrading in China.
