Inside the Virtuous Cycle between Productivity, Profitability, Investment and Corporate Growth: An Anatomy of China Industrialization

Quaderni - Working Paper DSE N° 1006

45 Pages Posted: 13 May 2015

See all articles by Xiodan Yu

Xiodan Yu

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Giovanni Dosi

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Marco Grazzi

Universita' Cattolica del Sacro Cuore

Jiasu Lei

Tsinghua University - School of Economics & Management

Date Written: May 11, 2015

Abstract

This article explores the dynamics of market selection by investigating of the relationships linking productivity, profitability, investment and growth, based on China's manufacturing firm-level dataset over the period 1998-2007. First, we find that productivity variations, rather than relative levels, are the dominant productivity-related determinant of firm growth, and account for 15%-20% of the variance in firms' growth rates. The direct relation between profitability and firm growth is much weaker as it contributes for less than 5% to explain the different patterns of firm growth. On the other hand, the profitability-growth relationship is mediated via investment. Firm's contemporaneous and lagged profitabilities display positive and significant effect on the probability to report an investment spike, and, in turn, investment activity is related to higher firm growth.

Keywords: Productivity, Market selection, Profitability, Investment spike, Firm growth, Chinese economy

JEL Classification: D22, L10, L20, L60, O30

Suggested Citation

Yu, Xiodan and Dosi, Giovanni and Grazzi, Marco and Lei, Jiasu, Inside the Virtuous Cycle between Productivity, Profitability, Investment and Corporate Growth: An Anatomy of China Industrialization (May 11, 2015). Quaderni - Working Paper DSE N° 1006, Available at SSRN: https://ssrn.com/abstract=2605030 or http://dx.doi.org/10.2139/ssrn.2605030

Xiodan Yu (Contact Author)

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

Giovanni Dosi

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

HOME PAGE: www.lem.sssup.it

Marco Grazzi

Universita' Cattolica del Sacro Cuore ( email )

1 Largo A. Gemelli
Milano (Milan), MI Milano 20123
Italy

Jiasu Lei

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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