IDEAS home Printed from https://ideas.repec.org/p/uct/uconnp/2020-01.html
   My bibliography  Save this paper

Deregulation as a Source of China’s Economic Growth

Author

Listed:
  • Shiyuan Pan

    (Zhejiang University)

  • Kai Xu

    (Zhejiang University)

  • Kai Zhao

    (University of Connecticut)

  • Tianxu Chen

    (University of Connecticut)

Abstract

We develop a simple two-sector neoclassical growth model in which the upstream sector produces intermediate goods, and the downstream sector produces final goods with outputs from the upstream. While the downstream sector features perfect competition, firms in the upstream sector engage in Cournot competition and charges a markup. We show that the deregulation and the introduction of competition in the upstream goods sector does not only increases the productivity in the sector, but also has a substantial spill-over effect on the productivity of the downstream sector and factor prices. We calibrate the model to the Chinese economy and use the calibrated model to quantitatively evaluate the extent to which the deregulation in the upstream market in China from 1998 to 2006 can account for the rapid economic growth and the high and rising returns to capital in China over the same period. Our quantitative experiments show that the deregulation in the upstream sector can account for a significant share of economic growth in China during the study period. In addition, our model delivers implications that are consistent with several other relevant observations in China during the same period.

Suggested Citation

  • Shiyuan Pan & Kai Xu & Kai Zhao & Tianxu Chen, 2020. "Deregulation as a Source of China’s Economic Growth," Working papers 2020-01, University of Connecticut, Department of Economics, revised May 2023.
    • Handle: RePEc:uct:uconnp:2020-01
    as

    Download full text from publisher

    File URL: https://media.economics.uconn.edu/working/2020-01R.pdf
    File Function: Full text (revised version)
    Download Restriction: no
    File URL: https://media.economics.uconn.edu/working/2020-01.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pol Antras & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," American Economic Review, American Economic Association, vol. 102(3), pages 412-416, May.
    2. Yong Wang & Xuewen Liu & Xi Li, 2013. "A Model of China's State Capitalism," 2013 Meeting Papers 853, Society for Economic Dynamics.
    3. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2005. "Regulation And Investment," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 791-825, June.
    4. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140, National Bureau of Economic Research, Inc.
    5. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    6. 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.
    7. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-855, December.
    8. Thomas J. Holmes & James A. Schmitz, 2010. "Competition and Productivity: A Review of Evidence," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 619-642, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    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

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daoju Peng & Kang ShiAuthor-Workplace-Name: Chinese University of Hong Kong & Juanyi XuAuthor-Workplace-Name: Hong Kong University of Science and Technology, 2016. "SOE and Chinese Real Business Cycle," Working Papers 022016, Hong Kong Institute for Monetary Research.
    2. Dudley Cooke & Tatiana Damjanovic, 2020. "Optimal Fiscal Policy in a Model of Firm Entry with Financial Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 74-96, January.
    3. Olivier Blanchard, 2000. "What Do We Know about Macroeconomics that Fisher and Wicksell Did Not?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1375-1409.
    4. Susanto Basu & John Fernald, 2001. "Why Is Productivity Procyclical? Why Do We Care?," NBER Chapters, in: New Developments in Productivity Analysis, pages 225-302, National Bureau of Economic Research, Inc.
    5. Rajnish Mehra & John Donaldson & Christos Koulovatianos & Jian Li, 2018. "Demographics and FDI: Lessons from China’s One-Child Policy," NCAER Working Papers 112, National Council of Applied Economic Research.
    6. Magnus Lundin & Nils Gottfries & Charlotte Bucht & Tomas Lindström, 2009. "Price and Investment Dynamics: Theory and Plant‐Level Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 907-934, August.
    7. Knudsen, Eirik Sjåholm, 2019. "Bad weather ahead: Pre-recession characteristics and the severity of recession impact," Journal of Business Research, Elsevier, vol. 104(C), pages 118-130.
    8. Sungki Hong, 2019. "Customer Capital, Markup Cyclicality, and Amplification," 2019 Meeting Papers 959, Society for Economic Dynamics.
    9. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2019. "Price Dynamics With Customer Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(1), pages 413-446, February.
    10. Chang, Xiao & An, Tongliang & Tam, Pui Sun & Gu, Xinhua, 2020. "National savings rate and sectoral income distribution: An empirical look at China," China Economic Review, Elsevier, vol. 61(C).
    11. Talukdar, Bidyut, 2017. "Learning-by-doing, organizational capital and optimal markup variations," The Journal of Economic Asymmetries, Elsevier, vol. 15(C), pages 39-47.
    12. Shiou‐Yen Chu, 2022. "Markups, inequality and monetary‐fiscal policies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(4), pages 367-395, September.
    13. Jaimovich, Nir, 2007. "Firm dynamics and markup variations: Implications for sunspot equilibria and endogenous economic fluctuations," Journal of Economic Theory, Elsevier, vol. 137(1), pages 300-325, November.
    14. Johri, Alok, 2001. "Markups and the Seasonal Cycle," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 367-395, July.
    15. M. Ali Choudhary, 2004. "Connecting People," School of Economics Discussion Papers 0404, School of Economics, University of Surrey.
    16. Goodfriend, Marvin, 1997. "A framework for the analysis of moderate inflations," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 45-65, June.
    17. Kollmann, Robert, 1997. "The cyclical behavior of mark ups in U.S. manufacturing and trade: new empirical evidence based on a model of optimal storage," Economics Letters, Elsevier, vol. 57(3), pages 331-337, December.
    18. Ines Perez-Soba Aguilar & Elena Marquez de la Cruz & Ana Rosa Martinez-Canete & Alfonso Palacio-Vera, 2006. "Capital Stock and Unemployment: Searching for the Missing Link," Economics Working Paper Archive wp_475, Levy Economics Institute.
    19. Carmen García & Joan Ramon Borrell & José Manuel Ordóñez-de-Haro & Juan Luis Jiménez, 2022. "Managers’ expectations, business cycles and cartels’ life cycle," European Journal of Law and Economics, Springer, vol. 53(3), pages 451-484, June.
    20. Niemeläinen, Julia, 2021. "External imbalances between China and the United States: A dynamic analysis with a life-cycle model," Journal of International Economics, Elsevier, vol. 131(C).

    More about this item

    Keywords

    Deregulation; TFP Growth; Chinese Economy;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uct:uconnp:2020-01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/deuctus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark McConnel (email available below). General contact details of provider: https://edirc.repec.org/data/deuctus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.