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Deregulation as a source of China’s economic growth

Published online by Cambridge University Press:  05 June 2023

Shiyuan Pan ,
Kai Xu ,
Kai Zhao  and
Tianxu Chen
Shiyuan Pan
Affiliation:
School of Economics, Zhejiang University, Hangzhou, China
Kai Xu*
Affiliation:
School of Economics, Zhejiang University, Hangzhou, China
Kai Zhao
Affiliation:
Department of Economics, The University of Connecticut, Storrs, CT, USA
Tianxu Chen
Affiliation:
Department of Economics, The University of Connecticut, Storrs, CT, USA
*
Corresponding author: Kai Xu; Email: kaixu@zju.edu.cn
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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 charge a markup. We show that the deregulation and the introduction of competition in the upstream goods sector not only increases the productivity in the sector but also has a substantial spillover 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.

Keywords

Deregulationgrowththe Chinese economy
Type
Articles
Information
Macroeconomic Dynamics , Volume 28 , Issue 3 , April 2024 , pp. 745 - 755
Copyright
© The Author(s), 2023. Published by Cambridge University Press

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