continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved …China has achieved impressive growth over the last three decades. However, there has been debate over the sources of … role of rising rates of investment. Because labor reallocation across sectors, TFP growth at the sector level and …

This paper uses the standard one-sector neoclassical growth model to investigate why China’s consumption has been low … and investment high. It finds that the low cost of capital has been quantitatively an important factor. Theory predicts … one form or the other, these distortions have implied significant transfers from households to firms. If China is to …