"Growing Like China"

Another interesting paper although this one costs money to access to. I wonder how much the CEPR make from this unimpressive policy which restricts the flow of research ideas.

"Growing Like China"

CEPR Discussion Paper No. DP7149

ZHENG MICHAEL SONG, School of Economics, Fudan University
Email: zsong@fudan.edu.cn
KJETIL STORESLETTEN, Stockholm University - Institute for International Economic Studies (IIES), University of Oslo - Department of Economics, Centre for Economic Policy Research (CEPR)
Email: KJETIL@IIES.SU.SE
FABRIZIO ZILIBOTTI, Stockholm University - Institute for International Economic Studies (IIES), Centre for Economic Policy Research (CEPR), CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: fabrizio.zilibotti@iies.su.se

This paper constructs a growth model that is consistent with salient features of the Chinese growth experience since 1992: high output growth, sustained returns on capital investments, extensive reallocation within the manufacturing sector, falling labor share and accumulation of a large foreign surplus. The theory makes only minimal deviations from a neoclassical growth model. Its building blocks are financial imperfections and reallocation among firms with heterogeneous productivity. Some firms use more productive technologies than others, 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 sector outgrows the low-productivity sector, and attracts an increasing employment share. During the transition, low wage growth sustains the return to capital. The downsizing of the financially integrated sector forces a growing share of domestic savings to be invested in foreign assets, generating a foreign surplus. We test some auxiliary implications of the theory and find robust empirical support.

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