China's investment and rate of return on capital revisited

Ya Tang, Jianguo Xu and Xun Zhang ()

Journal of Asian Economics, 2017, vol. 49, issue C, 12-25

Abstract: We revisit China's suspected overinvestment problem by examining the rate of return on capital from two perspectives. First, we find that two existing methods of estimating the rate of return generate conflicting results, and we succeed in reconciling them. Our revised estimates show that the rate of return rose sharply from 1998 to 2014, which helps explain the strong investment drive. Second, we explore what caused the rate of return to rise. We find the explanation lies mainly with the long-term factor of rising total factor productivity but that the short-term cyclical factor of low real interest rates has also contributed.

Keywords: Overinvestment; Capital return; Total factor productivity; Real interest rate; Financial development (search for similar items in EconPapers)
JEL-codes: E01 E22 E60 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:49:y:2017:i:c:p:12-25

DOI: 10.1016/j.asieco.2017.02.003

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