Growing like China

Zheng Michael Song (), Kjetil Storesletten () and Fabrizio Zilibotti

No 7149, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper constructs a growth model that is consistent with salient features of the Chinese growth experience since 1992: high output growth, sustained returns on capital investments, extensive reallocation within the manufacturing sector, falling labor share and accumulation of a large foreign surplus. The theory makes only minimal deviations from a neoclassical growth model. Its building blocks are financial imperfections and reallocation among firms with heterogeneous productivity. Some firms use more productive technologies than others, but low-productivity firms survive because of better access to credit markets. Due to the financial imperfections, high-productivity firms - which are run by entrepreneurs - must be financed out of internal savings. If these savings are sufficiently large, the high-productivity sector outgrows the low-productivity sector, and attracts an increasing employment share. During the transition, low wage growth sustains the return to capital. The downsizing of the financially integrated sector forces a growing share of domestic savings to be invested in foreign assets, generating a foreign surplus. We test some auxiliary implications of the theory and find robust empirical support.

Keywords: China; Economic Growth; Entrepreneurs; Foreign Surplus; Investment; Productivity Heterogeneity; Rate of Return on Capital; Reallocation; State-Owned Firms. (search for similar items in EconPapers)
JEL-codes: G18 O11 O16 O47 O53 P31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-dev, nep-dge, nep-fdg and nep-tra
Date: 2009-01
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP7149.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:7149

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP7149.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().