China: An Institutional View of an Unusual Macroeconomy

36 Pages Posted: 23 Nov 2013 Last revised: 7 Oct 2014

See all articles by David Dollar

David Dollar

World Bank - Development Economics Group (DEC)

Benjamin F. Jones

Northwestern University; National Bureau of Economic Research (NBER)

Date Written: November 2013

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.

Suggested Citation

Dollar, David and Jones, Benjamin F., China: An Institutional View of an Unusual Macroeconomy (November 2013). NBER Working Paper No. w19662. Available at SSRN: https://ssrn.com/abstract=2358754

David Dollar (Contact Author)

World Bank - Development Economics Group (DEC) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Benjamin F. Jones

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-3177 (Phone)
847-467-1777 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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