NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Mandarin Model of Growth

Wei Xiong

NBER Working Paper No. 25296
Issued in November 2018
NBER Program(s):Asset Pricing, Corporate Finance, Development Economics, Economic Fluctuations and Growth, International Finance and Macroeconomics

China's economic reforms over the past 40 years have led to a mixed economic structure with the government playing a key role in an increasingly market-driven economy. This paper expands a standard growth model of Barro (1990) to incorporate this structure, with a particular focus on including the agency problem between the central and local governments. To incentivize local governors, the central government has established an economic tournament, which generates not only intended incentives to develop local economies, à la Holmstrolm (1982), but also short-termist behaviors, à la Stein (1989). The latter channel helps to explain a series of challenges that confront the Chinese economy, such as overleverage through shadow banking and unreliable economic statistics.

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Document Object Identifier (DOI): 10.3386/w25296

 
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