| Abstract | Since 1982, CPC National Congress has been creditably targeting about 7% growth rate for China economy, which might provide a seminal perspective to understanding Chinese growth miracle. Based on the stylized fact that investment requires approval from governments, the paper incorporates the approval of investment into Schumpeterian growth model and shows that there exists a unique Markovian perfect equilibrium. In equilibrium, in order to incentivize the local leaders to carry out growth-promoting policy, the central government endogenously sets the optimal growth target, and transforms local leaders into stakeholders of economic growth by rents from their ability to choose the current policy. The local leaders rationally response to implement the optimal policy and meet the growth target. The endogenous growth target, therefore, determines actual growth path in the economy. Empirically, the paper validates some predictions of the model with the new dataset on growth target for 31 provincial governments during the period of 2000-2012. |