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Rebalancing China’s Economy; What Does Growth Theory Tell Us?

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  • Jahangir Aziz

Abstract

This paper uses the standard one-sector neoclassical growth model to investigate why China's consumption has been low and investment high. It finds that the low cost of capital has been quantitatively an important factor. Theory predicts that the price of capital may have been significantly distorted in the 1990s and 2000s. The distortion could have been caused by nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending. If China is to rebalance growth towards relying more on consumption and less on exports and investment, banking sector reforms and financial market development could, therefore, turn out to be key.

Suggested Citation

  • Jahangir Aziz, 2006. "Rebalancing China’s Economy; What Does Growth Theory Tell Us?," IMF Working Papers 06/291, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/291
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    Citations

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    Cited by:

    1. Maria Jesus Herrerías & Javier Ordóñez Monfort, 2015. "Testing Stochastic Convergence across Chinese Provinces, 1952-2008," Regional Studies, Taylor & Francis Journals, vol. 49(4), pages 485-501, April.
    2. Prasad, Eswar S., 2009. "Is the Chinese growth miracle built to last?," China Economic Review, Elsevier, vol. 20(1), pages 103-123, March.
    3. Eswar S. Prasad, 2011. "Rebalancing Growth in Asia," International Finance, Wiley Blackwell, vol. 14(1), pages 27-66, April.
    4. Robert C. Feenstra & Chang Hong, 2010. "China's Exports and Employment," NBER Chapters,in: China's Growing Role in World Trade, pages 167-199 National Bureau of Economic Research, Inc.
    5. Glawe, Linda & Wagner, Helmut, 2016. "China in the Middle-Income Trap?," MPRA Paper 73336, University Library of Munich, Germany.
    6. C Niranjan Rao, 2008. "The Role of Intellectual Property Rights in Information and Communication Technologies," Working Papers id:1742, eSocialSciences.
    7. Dirk Nabers, 2008. "China, Japan and the Quest for Leadership in East Asia," GIGA Working Paper Series 67, GIGA German Institute of Global and Area Studies.
    8. Lipschitz, Leslie & Rochon, Céline & Verdier, Geneviève, 2011. "A real model of transitional growth and competitiveness in China," Journal of Asian Economics, Elsevier, vol. 22(4), pages 267-283, August.
    9. Leslie Lipschitz & Genevieve Verdier & Celine Rochon, 2008. "A Real Model of Transitional Growth and Competitiveness in China," IMF Working Papers 08/99, International Monetary Fund.
    10. Jahangir Aziz, 2008. "Deconstructing China’s and India’s Growth: The Role of Financial Policies," Working Papers id:1714, eSocialSciences.
    11. Jahangir Aziz & Li Cui, 2007. "Explaining China’s Low Consumption; The Neglected Role of Household Income," IMF Working Papers 07/181, International Monetary Fund.
    12. 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.
    13. Jahangir Aziz, 2008. "Real and Financial Sector Linkages in China and India," IMF Working Papers 08/95, International Monetary Fund.
    14. Wagner, Prof. Dr. Helmut, 2016. "The Building Up of New Imbalances in China: The Dilemma with ‘Rebalancing’," MPRA Paper 71494, University Library of Munich, Germany.

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