Working Paper: NBER ID: w19662
Authors: David Dollar; Benjamin F. Jones
Abstract: China presents several macroeconomic patterns that appear inconsistent with standard stylized facts about economic development and hence inconsistent with the standard neoclassical growth model. We show that Chinese macroeconomic patterns instead appear consistent with an environment where state control of factor markets can promote aggressive output goals. We consider the micro-institutional features that can sustain this behavior, emphasizing the hukou system and state control over capital allocation, and present a simple model built on these features. The model can explain several puzzling facts about the Chinese economy, including its unusually low labor share and unusually high saving and investment rates. Interestingly, the model also shows that free-market reforms can initially take the economy further from global macroeconomic norms.
Keywords: China; macroeconomy; institutional view; labor share; saving rates; investment rates
JEL Codes: E02; E21; O11; P2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hukou system (R28) | surplus labor supply (J20) |
| surplus labor supply (J20) | depressed wages for migrant workers (J82) |
| depressed wages for migrant workers (J82) | reduced labor share of income (E25) |
| reduced labor share of income (E25) | elevated savings and investment rates (E22) |
| reduced labor costs (J39) | increased firm profits (L21) |
| increased firm profits (L21) | raised national savings (D14) |
| raised national savings (D14) | high investment rates (G31) |