| Over the past decades, China experienced fast economic development with continuously rising economic inequality. This dissertation studies China's experiences in economic growth and inequality in recent years and offers policy guidance on infrastructure investment and financial intermediation.;The first essay develops a dynamic multi-sector model to evaluate the impact of infrastructure investment on wage inequality (the skill premium) and output growth. The model features an infrastructure-driven externality in the production of all goods and a production technology that uses low-skilled labor intensively when producing infrastructure investment goods. When calibrated to data, the model shows that the infrastructure investment plays an important role in slowing down the rise in wage inequality, but a limited role in boosting the output level.;The second essay uses the model from the first essay to examine the welfare consequence of the infrastructure investment expansion in China. The results indicate a welfare gain equivalent to a permanent 11% upward shift in consumption. Also, under the benchmark calibration, 19% of gross domestic product (GDP) per year should be devoted to infrastructure investment to maximize the welfare gain.;The third essay studies the potential effects of reducing financial intermediation cost on output level and income inequality. I construct a heterogeneous agent model with incomplete markets and costly financial intermediation. An experiment in reducing the intermediation cost establishes two key results. First, lower intermediation costs facilitate capital accumulation and promote output level. Second, the income inequality rises initially and then drops, which is consistent with empirical evidence found in papers studying China. |
