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Growing like China


Song, Zheng; Storesletten, Kjetil; Zilibotti, Fabrizio (2011). Growing like China. American Economic Review, 101(1):196-233.

Abstract

This paper constructs a growth model that is consistent with salient features of the recent Chinese growth experience: high output growth, sustained returns on capital investment, extensive reallocation within the manufacturing sector, falling labor share and accumulation of a large foreign surplus. The building blocks of the theory are asymmetric financial imperfections and heterogeneous productivity. Some firms use more productive technologies, but low-productivity firms survive because of better access to credit markets. Due to the financial imperfections, high-productivity firms — which are run by entrepreneurs — must be financed out of internal savings. If these savings are sufficiently large, the high-productivity firms outgrow the low-productivity firms and attract an increasing employment share. The downsizing of the financially integrated firms forces a growing share
of domestic savings to be invested in foreign assets, generating a foreign surplus. A calibrated version of the theory can account quantitatively for China’s growth
experience during 1992-2007.

Abstract

This paper constructs a growth model that is consistent with salient features of the recent Chinese growth experience: high output growth, sustained returns on capital investment, extensive reallocation within the manufacturing sector, falling labor share and accumulation of a large foreign surplus. The building blocks of the theory are asymmetric financial imperfections and heterogeneous productivity. Some firms use more productive technologies, but low-productivity firms survive because of better access to credit markets. Due to the financial imperfections, high-productivity firms — which are run by entrepreneurs — must be financed out of internal savings. If these savings are sufficiently large, the high-productivity firms outgrow the low-productivity firms and attract an increasing employment share. The downsizing of the financially integrated firms forces a growing share
of domestic savings to be invested in foreign assets, generating a foreign surplus. A calibrated version of the theory can account quantitatively for China’s growth
experience during 1992-2007.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:February 2011
Deposited On:28 Mar 2011 12:36
Last Modified:17 Feb 2018 13:20
Publisher:American Economic Association
ISSN:0002-8282
OA Status:Green
Publisher DOI:https://doi.org/10.1257/aer.101.1.196

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