Growing like China

Zheng Song, Kjetil Storesletten, Fabrizio Zilibotti

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)196-233
Number of pages38
JournalAmerican Economic Review
Volume101
Issue number1
DOIs
StatePublished - Feb 2011
Externally publishedYes

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