IMF paper on rebalancing China's economy

The IMF Working Paper "Rebalancing China's economy: What does growth theory tell us?" 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 that the price of capital may have been significantly distorted in the 1990s and 2000s. The distortion could have been caused by nonperforming loans, borrowing constraints, and uncertainty

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