Advanced Search
MyIDEAS: Login

A real model of transitional growth and competitiveness in China

Contents:

Author Info

  • Lipschitz, Leslie
  • Rochon, Céline
  • Verdier, Geneviève
Registered author(s):

    Abstract

    We present a stylized real model of the Chinese economy with the objective of explaining two features: (1) domestic production is highly competitive in the sense that an accumulation of capital that raises the marginal product of labor elicits increases in employment and output rather than only in wages; and (2) even though the domestic saving rate is high, foreign direct investment is also substantial. We explain these features in terms of a conventional neoclassical growth model -- with no monetary or nominal exchange rate policy -- by including two aspects of the economy explicitly in the model: (1) low production wages are sustained by a large reserve army of rural labor which drives internal migration, and (2) domestic capital is distinct from importable capital and complementary with it in production. The results suggest that underlying real phenomena are important in explaining recent history; while nominal renmimbi appreciation may dampen price and wage increases, it would probably not change the real factors that have sustained rapid growth.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S1049007811000388
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Asian Economics.

    Volume (Year): 22 (2011)
    Issue (Month): 4 (August)
    Pages: 267-283

    as in new window
    Handle: RePEc:eee:asieco:v:22:y:2011:i:4:p:267-283

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/asieco

    Related research

    Keywords: Foreign direct investment Saving Investment Surplus labor Migration;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Ben S. Bernanke & Refet S. Gürkaynak, 2002. "Is Growth Exogenous? Taking Mankiw, Romer, and Weil Seriously," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 11-72 National Bureau of Economic Research, Inc.
    2. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
    3. Barro, Robert J & Mankiw, N Gregory & Sala-i-Martin, Xavier, 1995. "Capital Mobility in Neoclassical Models of Growth," American Economic Review, American Economic Association, vol. 85(1), pages 103-15, March.
    4. Zhong Zhao, 2005. "Migration, Labor Market Flexibility, and Wage Determination in China: A Review," Labor and Demography 0507009, EconWPA.
    5. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
    6. Rappaport, Jordan, 2005. "How does labor mobility affect income convergence?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(3), pages 567-581, March.
    7. Greenwood, Michael J, et al, 1991. "Migration, Regional Equilibrium, and the Estimation of Compensating Differentials," American Economic Review, American Economic Association, vol. 81(5), pages 1382-90, December.
    8. Olivier Jeanne, 2007. "International Reserves in Emerging Market Countries: Too Much of a Good Thing?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 1-80.
    9. Genevieve Verdier, 2003. "What Drives Long-term Capital Flows? A Theoretical and Empirical Investigation," Macroeconomics 0310011, EconWPA, revised 14 Jul 2005.
    10. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480 National Bureau of Economic Research, Inc.
    11. Kuijs, Louis, 2005. "Investment and saving in China," Policy Research Working Paper Series 3633, The World Bank.
    12. Monacelli, Tommaso, 2004. "Into the Mussa puzzle: monetary policy regimes and the real exchange rate in a small open economy," Journal of International Economics, Elsevier, vol. 62(1), pages 191-217, January.
    13. Joshua Hojvat Gallin, 2004. "Net Migration and State Labor Market Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 22(1), pages 1-22, January.
    14. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank.
    15. Lane, Philip R, 2001. "International Trade and Economic Convergence: The Credit Channel," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 221-40, April.
    16. Kuijs, Louis, 2006. "How will China's saving-investment balance evolve ?," Policy Research Working Paper Series 3958, The World Bank.
    17. Lewis, W Arthur, 1979. "The Dual Economy Revisited," The Manchester School of Economic & Social Studies, University of Manchester, vol. 47(3), pages 211-29, September.
    18. Giles, John & Park, Albert & Zhang, Juwei, 2005. "What is China's true unemployment rate?," China Economic Review, Elsevier, vol. 16(2), pages 149-170.
    19. Steven Barnett & Ray Brooks, 2006. "What's Driving Investment in China?," IMF Working Papers 06/265, International Monetary Fund.
    20. Tao Ran & Ray Brooks, 2003. "China's Labor Market Performance and Challenges," IMF Working Papers 03/210, International Monetary Fund.
    21. Chamon, Marcos & Prasad, Eswar, 2007. "Why Are Saving Rates of Urban Households in China Rising?," IZA Discussion Papers 3191, Institute for the Study of Labor (IZA).
    22. Morris Goldstein & Nicholas R. Lardy, 2005. "China's Role in the Revived Bretton Woods System: A Case of Mistaken Identity," Working Paper Series WP05-2, Peterson Institute for International Economics.
    23. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "Direct investment, rising real wages and the absorption of excess labor in the periphery," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    24. John Whalley & Shunming Zhang, 2004. "Inequality Change in China and (Hukou) Labour Mobility Restrictions," NBER Working Papers 10683, National Bureau of Economic Research, Inc.
    25. Fei, John C H & Ranis, Gustav, 1969. "Economic Development in Historical Perspective," American Economic Review, American Economic Association, vol. 59(2), pages 286-400, May.
    26. Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Luigi Bonatti & Andrea Fracasso, 2012. "The costs of rebalancing the China-US co-dependency," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(1), pages 59-106.
    2. Bonatti, Luigi & Fracasso, Andrea, 2013. "Regime switches in the Sino-American co-dependency: Growth and structural change in China," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 1-32.
    3. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:22:y:2011:i:4:p:267-283. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.