Growing Like China

Zheng Song (), Kjetil Storesletten and Fabrizio Zilibotti

American Economic Review, 2011, vol. 101, issue 1, 196-233

Abstract: We construct a growth model consistent with China's economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial firms use more productive technologies, but due to financial imperfections they must finance investments through internal savings. State-owned firms have low productivity but survive because of better access to credit markets. High-productivity firms outgrow low-productivity firms if entrepreneurs have sufficiently high savings. The downsizing of financially integrated firms forces domestic savings to be invested abroad, generating a foreign surplus. A calibrated version of the theory accounts quantitatively for China's economic transition. (JEL E21, E22, E23, F43, L60, O16, O53, P23, P24, P31)

Date: 2011
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Working Paper: Growing like China (2009)
Working Paper: Growing like China (2009)
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