This work explores the dynamics of the ‘virtuous circle’ driving the impressive Chinese catching-up and growth by investigating the micro relationships linking productivity, profitability, investment and growth, based on China's manufacturing firm-level dataset over the period 1998–2007. Interestingly and somewhat puzzlingly, we find that productivity variations, rather than relative levels, are the prevalent productivity-related determinant of firm growth. Moreover, the direct relation between profitability and firm growth is much weaker and its contribution to the explanation of the different rates of firm growth is almost negligible. The only visible profitability-growth relationship is mediated via investment. Firm's contemporaneous and lagged profitabilities display positive and significant effect on the probability to report an investment spike, and, in turn, investment activities are related to higher firm growth.
- Chinese industry
- Virtuous circle
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research
- Management of Technology and Innovation