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American Economic Review: Vol. 101 No. 1 (February 2011)

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Growing Like China

Article Citation

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

DOI: 10.1257/aer.101.1.196

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. (JEL E21, E22, E23, F43, L60, O16, O53, P23, P24, P31)

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Authors

Song, Zheng (Fudan U and Chinese U Hong Kong)
Storesletten, Kjetil (Federal Reserve Bank of Minneapolis)
Zilibotti, Fabrizio (U Zurich)

JEL Classifications

E21: Macroeconomics: Consumption; Saving; Wealth
E22: Capital; Investment; Capacity
E23: Macroeconomics: Production
L60: Industry Studies: Manufacturing: General
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
P23: Socialist Systems and Transitional Economies: Factor and Product Markets; Industry Studies; Population
P24: Socialist Systems and Transitional Economies: National Income, Product, and Expenditure; Money; Inflation


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