Two papers on Chinese Growth

Population Aging, Credit Market Frictions, and Chinese Economic Growth

By Michael Dotsey, Wenli Li and Fang Yang

http://d.repec.org/n?u=RePEc:fip:fedpwp:86688&r=dge

We build a unified framework to quantitatively examine population aging and credit market frictions in contributing to Chinese economic growth between 1977 and 2014. We find that demographic changes together with endogenous human capital accumulation account for a large part of the rise in per capita output growth, especially after 2007, as well as some of the rise in savings. Credit policy changes initially alleviate the capital misallocation between private and public firms and lead to significant increases in both savings and output growth. Later, they distort capital allocation. While contributing to further increase in savings, the distortion slows down economic growth. Among factors that we consider, increased life expectancy and financial development in the form of reduced intermediation cost are the most important in driving the dynamics of savings and growth.


Deregulation as a Source of China’s Economic Growth

By Shiyuan Pan, Kai Xu and Kai Zhao

http://d.repec.org/n?u=RePEc:uct:uconnp:2020-01&r=dge

We develop a two-sector growth model of vertical structure in which the upstream sector features Cournot competition and produces intermediate goods that are used in the downstream sector for the production of final goods. In such a vertical structure, we show that deregulation and increased market competition in the upstream sector does not only increase its own productivity, but also has a substantial spillover effect on the productivity of the downstream sector through affecting factor prices. We calibrate the model to the Chinese economy and use the calibrated model to quantitatively evaluate the extent to which deregulation in the upstream market in China from 1998 to 2007 accounts for the rapid economic growth over the same period. Our quantitative experiments suggest that deregulation in the upstream market in China from 1998 to 2007 can account for a significant fraction of China’s economic growth during this period partly due to the significant spillover effect it has on the downstream sector. In addition, our model can also match several relevant observations in China during the same period including high and rising returns to capital, declining markups.

In this week’s crop of new papers on NEP-DGE, two on the same topic with seemingly very different explanations of Chinese growth. But as the papers individually note, the earlier growth is likely more due to deregulation (which has to stop at some point), while the later one is due to demographics. The demographic factor will become more interesting soon, as ageing plus stagnant or even declining population will put China in a similar situation to Japan.

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