Financial Frictions, Entry and Growth: A Study of China
Review of Economic Dynamics, 2019, vol. 34, 267-282
With a focus on the entry channel, this paper investigates the role of business deregulation and financial reform in China's credit and stock markets in explaining the rapid economic growth of China over the past twenty years. A dynamic general equilibrium growth model with heterogeneous consumers and firms is developed. Quantitative results using firm-level data show that the structural reforms that facilitated business formation and growth led to significantly higher aggregate output. This was driven by resource reallocation resulting from stronger market competition, in particular caused by the massive influx of new firms. Policy analysis shows that further reform could also have a large impact. (Copyright: Elsevier)
Keywords: Structural Reforms; Entry; Market Selection; Economic Growth; China (search for similar items in EconPapers)
JEL-codes: E23 E44 O40 O53 (search for similar items in EconPapers)
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