We construct a growth model consistent with China’s economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial firms use more productive technologies, but due to financial imperfections they must finance investments through internal savings. State-owned firms have low productivity but survive because of better access to credit markets. High-productivity firms outgrow low-productivity firms if entrepreneurs have sufficiently high savings. The downsizing of financially integrated firms forces domestic savings to be invested abroad, generating a foreign surplus. A calibrated version of the theory accounts quantitatively for China’s economic transition.
In this paper, we use new survey data on twins born in urban China, among whom many experienced the consequences of the forced mass rustication movement of the Chinesecultural revolution, to identify the distinct roles of altruism and guilt in affecting behavior within families. Based on a model depicting the choices of the allocation of parental time and transfers to multiple children incorporating favoritism, altruism and guilt, we show the conditions under which guilt and altruism can be separately identified by experimental variation in parental time with children. Based on within-twins estimates of affected cohorts, we find that parents selected children with lower endowments to be sent down; that parents behaved altruistically, providing more gifts to the sibling with lower earnings and schooling; but also exhibited guilt given the current state variables of the two children, the child experiencing more years of rustication received significantly higher transfers.
We construct a growth model consistent with China’s economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial firms use more productive technologies, but due to financial imperfections they must finance investments through internal savings. State-owned firms have low productivity but survive because of better access to credit markets. High-productivity firms outgrow low-productivity firms if entrepreneurs have sufficiently high savings. The downsizing of financially integrated firms forces domestic savings to be invested abroad, generating a foreign surplus. A calibrated version of the theory accounts quantitatively for China’s economic transition.
In this paper, we use new survey data on twins born in urban China, among whom many experienced the consequences of the forced mass rustication movement of the Chinesecultural revolution, to identify the distinct roles of altruism and guilt in affecting behavior within families. Based on a model depicting the choices of the allocation of parental time and transfers to multiple children incorporating favoritism, altruism and guilt, we show the conditions under which guilt and altruism can be separately identified by experimental variation in parental time with children. Based on within-twins estimates of affected cohorts, we find that parents selected children with lower endowments to be sent down; that parents behaved altruistically, providing more gifts to the sibling with lower earnings and schooling; but also exhibited guilt given the current state variables of the two children, the child experiencing more years of rustication received significantly higher transfers.
