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A Real Model of Transitional Growth and Competitiveness in China

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Author Info

  • Leslie Lipschitz
  • Geneviève Verdier
  • Céline Rochon

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/99.

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Length: 31
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/99

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Keywords: Foreign direct investment; Migration; Economic growth; Foreign investment; Savings; Labor supply; Prices; Exchange rates; foreign capital; domestic capital; fdi; international capital markets; capital mobility; capital markets; direct investment; capital flows; international capital; net capital flows; capital formation; capital inflows; foreign goods; capital accumulation; net capital; exogenous shocks; portfolio investment; access to international capital; credit constraint; access to international capital markets; tax incentives; capital increases; foreign good; international trade; capital ? flows; foreign exchange; capital stock; foreign markets; credit constraints; direct investment inflows; excess supply; capital increase; international standard; current account deficit; real appreciation;

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References

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Citations

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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. "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.

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