Deregulation as a Source of China’s Economic Growth

Shiyuan Pan, Kai Xu, Kai Zhao and Tianxu Chen
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Kai Xu: Zhejiang University
Tianxu Chen: University of Connecticut

No 2020-01, Working papers from University of Connecticut, Department of Economics

Abstract: We develop a simple two-sector neoclassical growth model in which the upstream sector produces intermediate goods, and the downstream sector produces final goods with outputs from the upstream. While the downstream sector features perfect competition, firms in the upstream sector engage in Cournot competition and charges a markup. We show that the deregulation and the introduction of competition in the upstream goods sector does not only increases the productivity in the sector, but also has a substantial spill-over effect on the productivity of the downstream sector and factor prices. We calibrate the model to the Chinese economy and use the calibrated model to quantitatively evaluate the extent to which the deregulation in the upstream market in China from 1998 to 2006 can account for the rapid economic growth and the high and rising returns to capital in China over the same period. Our quantitative experiments show that the deregulation in the upstream sector can account for a significant share of economic growth in China during the study period. In addition, our model delivers implications that are consistent with several other relevant observations in China during the same period.

Keywords: Deregulation; TFP Growth; Chinese Economy (search for similar items in EconPapers)
JEL-codes: E00 E13 O40 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2020-01, Revised 2023-05
New Economics Papers: this item is included in nep-cna, nep-com, nep-dge, nep-mac and nep-tra
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