Savings, foreign resources and monetary aggregates in China 1954-1989

By employing a development finance approach, this paper examines the role of domestic savings, foreign resources and monetary aggregates in promoting economic growth in China. A two-equation model incorporating the financial repression paradigm, the structuralist "two gap" analysis, and the use of "total inflation" is constructed. Empirical results show that China's high savings was due to its "forced" nature, foreign resources were not a good explanatory variable until the reform years, while an improvement in the real return of money promoted investment growth. The first step in eliminating financial repression will be to assure a high real return. © 1992.