• DOI:10.1257/AER.101.1.196
• Corpus ID: 11039546

Growing Like China

@article{Song2009GrowingLC,
  title={Growing Like China},
  author={Zheng Song and Kjetil Storesletten and Fabrizio Zilibotti},
  journal={Macroeconomics: Production \& Investment eJournal},
  year={2009}
}

• Zheng Song, Kjetil Storesletten, Fabrizio Zilibotti
• Published 1 January 2009
• Economics, Business
• Macroeconomics: Production & Investment eJournal

This paper constructs a growth model that is consistent with salient features of the recent Chinese growth experience: high output growth, sustained returns on capital investment, extensive reallocation within the manufacturing sector, falling labor share and accumulation of a large foreign surplus. The building blocks of the theory are asymmetric financial imperfections and heterogeneous productivity. Some firms use more productive technologies, 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 firms outgrow the low-productivity firms and attract an increasing employment share. The downsizing of the financially integrated firms forces a growing share of domestic savings to be invested in foreign assets, generating a foreign surplus. A calibrated version of the theory can account quantitatively for China’s growth