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Growing Like China

Growing Like China. Wei Chen. PROBLEMS. Contradict. How to Solve This Puzzle ?. ANSWERS. HISTORY BACKGROUND. Video: History background 1. 1. Cameron D’AngeloChina’s , Economic Growth, <http :// www.youtube.com / watch?v = 7TT8uHVZWBY>. REALLOCATION. DPE: Domestic Private Enterprises

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Growing Like China

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  1. Growing Like China Wei Chen

  2. PROBLEMS Contradict How to Solve This Puzzle ?


  4. HISTORY BACKGROUND Video: History background1 1.Cameron D’AngeloChina’s, Economic Growth, <http://www.youtube.com/watch?v=7TT8uHVZWBY>

  5. REALLOCATION DPE: Domestic Private Enterprises SOE: State-owned Enterprises FE: Foreign Enterprises


  7. DIFFERNECE BETWEEN DPE & SOE SOE finance more than 30 percent of their investments through bank loans compared to less than 10 percent for DPE

  8. INCOME INEQUALITY Fact: The Gini coefficient in China grew from 0.36 in 1992 to 0.474in 2012 (0.61 in SouthwesternUniversityofFinanceandEconomics’ report) Reason: This development may be due in part to the slow growth of wages relative to entrepreneurial income.

  9. A. Preference, Technology, and Market 1 1. Two Periods Model: the first period and live off savings in the second period. 2. Utility Function: 3. Workers: N t+1 = (1 + ν) N t .

  10. A. Preference, Technology, and Market 2 4. Firm types: Entrepreneurial firms (E) & Financially Integrated (F)

  11. A. Preference, Technology, and Market 3 5. Technology: 6. Budget: 7. Saving: Conclusion: wages equal the marginal product of labor

  12. A. Preference, Technology, and Market 4 E Value: Interpreted: Value = Max {Total Output –money stolen – wages} Conclusion:

  13. A. Preference, Technology, and Market 5 Capital = saving + Loan: Firms need enough money to pay back loan Conclusion: Optimal Saving Rate:

  14. B. Discussion of Assumptions Result :Hard for money to flow to high productive DPE firms

  15. C. Equilibrium During Transition 1 Prove: Due to the disadvantage in raising funds, E firms choose in equilibrium a lower capital-output ratio than do F firms. 1. Capital per labor: 2. Define lending rate R l pins down the marginal product of capital of F firms 3. κFis constant. in standard neoclassical open-economy: 4. Conclusion

  16. C. Equilibrium During Transition 2 Assumption: 1.Ke and A are state variable. 2. capital per labor is constant. 3. entrepreneur savings is linear in Ke Conclusion: ThegrowthrateofρE is hump-shaped in ψ. Recall: ρE is return on capital from E firm; ψis the stolen rate

  17. D. Foreign Surplus, Savings, and Investment 1. Bank Balance: Interpreted: Loan to Firms F + Loan to Firm E + Foreign Bond = Saving 2. Foreign Surplus: Condition: The intuition for the growing foreign surplus is that as employment is reallocated towards the more productive E firms. 3. All E Firms: 4. Conclusion: Due to the financial frictions, the growth rate of the foreign surplus can exceed that of GDP, resulting in a growing B t / Y t ratio

  18. E. Discussion of Results

  19. QUANTITATIVE ANALYSIS 1. In Theory, we used two period model. Now, we extend our theory to an Auerbach-Kotlikoff OLG model in which agents live T periods. 2.Young entrepreneurs(富二代)work as managers for T/2 periods and as entrepreneursfor the remaining T/2 periods 3. The parameters set exogenously. One period is one year. Agents enter the economy at age 28 and live until 78 (T = 50). The average retirement agein China is 58, so workers retire after J = 30 years of work.

  20. RESULT

  21. MY OPINION 1. Yuan Da Corporation, Time Lapse Video Of China Completing 15 Story Hotel In 6 Days, <http://www.youtube.com/watch?v=VgXi2iKpX_0>

  22. Thanks for listening!

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