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Why Does China Invest So Much?

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Author Info

  • John Knight

    (China Growth Centre, St. Edmund Hall University of Oxford, OX1 4AR, United Kingdom.)

  • Sai Ding

    (Department of Economics, University of Glasgow, Adam Smith Building, Glasgow, G12 8RT, United Kingdom.)

Abstract

China has had a remarkably high ratio of investment to output ever since economic reform began in 1978, surpassing almost all other economies. This is an important proximate determinant of China's high growth rate. This paper gathers together the available evidence to explain why investment is so high: factors both on the demand and on the supply side, and in the latter case the availability of both resources and funds. It analyzes the rate of return on capital and its evolution, and the factors that have kept it up. It draws on the literature to explain the high saving rate, and considers why the imperfect capital market and institutional deficiencies have not constrained investment. The state-owned and private sectors are treated separately because of their different objectives, behavior, and funding. (c) 2010 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Asian Economic Papers.

Volume (Year): 9 (2010)
Issue (Month): 3 (October)
Pages: 87-117

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Handle: RePEc:tpr:asiaec:v:9:y:2010:i:3:p:87-117

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  1. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
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Citations

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Cited by:
  1. Sai Ding & Alessandra Guariglia & John Knight, 2010. "Negative investment in China: financing constraints and restructuring versus growth," Working Papers 2010_31, Business School - Economics, University of Glasgow.
  2. Ding Lu, 2011. "Transition of China’s growth pattern," Frontiers of Economics in China, Springer, vol. 6(4), pages 535-555, December.
  3. Sai Ding & Alessandra Guariglia & John Knight, 2010. "Does China overinvest? Evidence from a panel of Chinese firms," Working Papers 2010_05, Durham University Business School.
  4. Knight, John & Wang, Wei, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," BOFIT Discussion Papers 15/2011, Bank of Finland, Institute for Economies in Transition.
  5. Guonan Ma & Robert McCauley & Lillie Lam, 2013. "The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 72-84, 02.

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