Growing like China

Fabrizio Zilibotti, Kjetil Storesletten and Zheng Song ()

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)
Date: 2009-01
New Economics Papers: this item is included in nep-cna, nep-dev, nep-dge, nep-fdg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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Journal Article: Growing Like China (2011)
Working Paper: Growing like China (2009)
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