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Deregulation as a Source of China’s Economic Growth

Author

Listed:
  • Shiyuan Pan

    (Zhejiang University)

  • Kai Xu

    (Zhejiang University)

  • Kai Zhao

    (University of Connecticut)

Abstract

We develop a two-sector growth model of vertical structure in which the up-stream sector features Cournot competition and produces intermediate goods that are used in the downstream sector for the production of final goods. In such a ver-tical structure, we show that deregulation and increased market competition in the upstream sector does not only increase its own productivity, but also has a substan-tial spill-over effect on the productivity of the downstream sector through affecting factor prices. We calibrate the model to the Chinese economy and use the calibrated model to quantitatively evaluate the extent to which deregulation in the upstream market in China from 1998 to 2007 accounts for the rapid economic growth over the same period. Our quantitative experiments suggest that deregulation in the up-stream market in China from 1998 to 2007 can account for a significant fraction of China’s economic growth during this period partly due to the significant spillover effect it has on the downstream sector. In addition, our model can also match sev-eral relevant observations in China during the same period including high and rising returns to capital, declining markups.

Suggested Citation

  • Shiyuan Pan & Kai Xu & Kai Zhao, 2020. "Deregulation as a Source of China’s Economic Growth," Working papers 2020-01, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2020-01
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    References listed on IDEAS

    as
    1. Yong Wang & Xuewen Liu & Xi Li, 2013. "A Model of China's State Capitalism," 2013 Meeting Papers 853, Society for Economic Dynamics.
    2. İmrohoroğlu, Ayşe & Zhao, Kai, 2018. "The chinese saving rate: Long-term care risks, family insurance, and demographics," Journal of Monetary Economics, Elsevier, vol. 96(C), pages 33-52.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Two papers on Chinese Growth
      by Christian Zimmermann in NEP-DGE blog on 2020-01-20 20:44:55

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    More about this item

    Keywords

    Deregulation; Economic Growth; Vertical Structure;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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