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Inside the virtuous circle between productivity, profitability, investment and corporate growth: An anatomy of Chinese industrialization

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  • Yu, Xiaodan
  • Dosi, Giovanni
  • Grazzi, Marco
  • Lei, Jiasu

Abstract

This work explores the dynamics of the ‘virtuous circle’ driving the impressive Chinese catching-up and growth by investigating the micro relationships linking productivity, profitability, investment and growth, based on China's manufacturing firm-level dataset over the period 1998–2007. Interestingly and somewhat puzzlingly, we find that productivity variations, rather than relative levels, are the prevalent productivity-related determinant of firm growth. Moreover, the direct relation between profitability and firm growth is much weaker and its contribution to the explanation of the different rates of firm growth is almost negligible. The only visible profitability-growth relationship is mediated via investment. Firm's contemporaneous and lagged profitabilities display positive and significant effect on the probability to report an investment spike, and, in turn, investment activities are related to higher firm growth.

Suggested Citation

  • Yu, Xiaodan & Dosi, Giovanni & Grazzi, Marco & Lei, Jiasu, 2017. "Inside the virtuous circle between productivity, profitability, investment and corporate growth: An anatomy of Chinese industrialization," Research Policy, Elsevier, vol. 46(5), pages 1020-1038.
    • Handle: RePEc:eee:respol:v:46:y:2017:i:5:p:1020-1038
    DOI: 10.1016/j.respol.2017.03.006
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    More about this item

    Keywords

    Productivity; Learning; Profitability; Virtuous circle; Catching-up; Chinese industry;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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