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Who provides the capital for Chinese growth: the public or the private sector?

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  • Xiaodong Chen
  • Patrick Minford
  • Kun Tian
  • Peng Zhou

Abstract

We focus on the role of the government in the provision of investment in China, through the medium of a Dynamic Stochastic General Equilibrium model of the economy in which the form of the production function reflects this governmental role. Using indirect inference, we estimate and test for the elasticity of substitution between government and nongovernment capital in both Constant Elasticity of Substitution (CES) and Cobb–Douglas technologies. The results underscore the strong substitution relationship between government and nongovernment capital from 1949, supporting CES rather than the Cobb–Douglas technology. They also show that the orientation of public investment changed after the start of the ‘Socialist Market Economy’ in 1992: government capital became more complementary to nongovernment capital as it focused more on infrastructure and withdrew from industrial production, intervening only in times of crisis, for stabilization purposes, indirectly via the state banks.

Suggested Citation

  • Xiaodong Chen & Patrick Minford & Kun Tian & Peng Zhou, 2017. "Who provides the capital for Chinese growth: the public or the private sector?," Applied Economics, Taylor & Francis Journals, vol. 49(23), pages 2238-2252, May.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:23:p:2238-2252
    DOI: 10.1080/00036846.2016.1234704
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    References listed on IDEAS

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    1. World Bank, 2015. "World Development Indicators 2015," World Bank Publications - Books, The World Bank Group, number 21634, December.
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    Cited by:

    1. Chaowei Wang & Vo Phuong Mai Le & Kent Matthews & Peng Zhou, 2021. "Shadow banking activity and entrusted loans in a DSGE model of China," Manchester School, University of Manchester, vol. 89(5), pages 445-469, September.

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