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American Economic Review Vol. 101 No. 1 2011

Growing Like China

Zheng Song1; Kjetil Storesletten2; Fabrizio Zilibotti3

1 School of Economics, Fudan University, 618–600 GuoQuan Road, Shanghai 200433, China and Chinese University of Hong Kong, 929 Esther Lee Building, Shatin, Hong Kong. · 2 Research Department, Federal Reserve Bank of Minneapolis, 90 Hennepin Avenue, Minneapolis, MN 55401. · 3 Department of Economics, University of Zurich, Mühlebachstrasse 86, CH-8008 Zurich.

open access

Abstract

We construct a growth model consistent with China's economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial firms use more productive technologies, but due to financial imperfections they must finance investments through internal savings. State-owned firms have low productivity but survive because of better access to credit markets. High-productivity firms outgrow low-productivity firms if entrepreneurs have sufficiently high savings. The downsizing of financially integrated firms forces domestic savings to be invested abroad, generating a foreign surplus. A calibrated version of the theory accounts quantitatively for China's economic transition.

DOI
10.1257/aer.101.1.196
Volume
101
Issue
1
Pages
196-233
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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