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

Chen, Xiaodong, Minford, Anthony Patrick Leslie ORCID: https://orcid.org/0000-0003-2499-935X, Tian, Kun and Zhou, Peng ORCID: https://orcid.org/0000-0002-4310-9474 2017. Who provides the capital for Chinese growth: the public or the private sector? Applied Economics 49 (23) , pp. 2238-2252. 10.1080/00036846.2016.1234704

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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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Uncontrolled Keywords:	China, government investment, indirect inference, economic growth
Publisher:	Routledge
ISSN:	0003-6846
Date of First Compliant Deposit:	16 December 2016
Date of Acceptance:	26 October 2016
Last Modified:	14 Nov 2024 16:00
URI:	https://orca.cardiff.ac.uk/id/eprint/96959

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