A theory of economic development and dynamics of Chinese economy

Saite Lu (), Jim Huangnan Shen, Weiping Li and Jun Zhang

Economic Modelling, 2020, vol. 86, issue C, 69-87

Abstract: This paper constructs a theoretical model which captures the recent slowing-down of Chinese economy. In contrast with the previous literature which largely confines its focus on the resource misallocation between inefficient state-owned enterprises (SOEs) and more efficient private firms under a closed economy setting, this paper re-examines the dynamics of the growth of Chinese economy from the perspective of an open economy. In particular, this paper incorporates heterogeneous outputs and relative prices into the model, where private firms are assumed to be the major exporters and the remaining large SOEs create increasing import demand from the home country. By adding downward sloping world demand curve, our paper predicts a turning point during the transition process, as the falling relative price for exports starts to constrain and eventually slow down the growth; SOEs begin to co-exist with private firms in the economy before it is fully transformed. Our paper provides a theoretical foundation in terms of understanding the current dynamics and institutional change of Chinese economy. Additionally, this paper also provides quantitative evidence on the effects of financial development during the China's economic transition process.

Keywords: Slowing-down; Chinese economy; Resource misallocation; Inefficient SOEs; Private firms; Heterogeneous outputs; World demand curve; Economic transition process (search for similar items in EconPapers)
JEL-codes: E21 E22 E23 L60 O16 P23 P24 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:86:y:2020:i:c:p:69-87

DOI: 10.1016/j.econmod.2019.06.003

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