Market Growth And Volatility Effects

Undoubtedly, market-oriented reform promoted the economic growth rate, and changed the mode of economic fluctuation in China. In contrast with other economic literatures researching on market-oriented reform, this paper does not attempt to explain the reason of the reform and the specific path to the reform; instead, it tries to understand how the realistic process of market-oriented reform affects economic growth and fluctuation in China.At first, according to the stylized facts concluded by economic growth theory and modem macroeconomics, the paper examines the economic growth and macroeconomic fluctuation in the process of Chinese market-oriented reform, of which the outcome shows that Chinese economic growth and fluctuation basically conform to these stylized facts. But in China, following special facts need to be explained: the growth rates of the output and the capital stock after the reform are higher than that before the reform; state-owned economic output and capital stock increase quickly in a period after the reform; the capital-output ratio of the state-owned economy shows an marked ascending trend; there exists no Okun's Law between unemployment rate and economic growth rate. These stylized facts need to be explained in the process of market-oriented reform in China.The paper notes that the process of Chinese market-oriented reform is the combination of two processes: first, the government deregulates the economy gradually; second, the non-state-owned economy develops gradually.Based on above understanding, the paper sets up a two-sector model including state-owned and non-state-owned economies.There is resource transfer between the two sectors. The resource transfers from state-owned sector to non-state-owned sector through the expenditure of wage, and it transfers from non-stated-owned sector to stated-owned sector through resident's saving deposit. It is the resource transfer between state-owned sector and the non-state-owned sector that makes Chinese economic growth and fluctuation in the process of market-oriented reform has different characters.The model argues that investment deregulation is the start-point of Chinese market-oriented reform, and it causes the development of non-state-owned sector. As severe financing regulation in the non-state-owned sector exists in the process of investment deregulation, state-owned sector gets more funds from non-state-owned sector in the form of saving deposit in the market-oriented process, thus accelerates the capital stock and economic growth in the state-owned sector. In this way, investment deregulation accelerates the capital stock and economic growth both in the state-owned and in the non-state-owned sector, i.e. in the whole economy. Meanwhile, as the state-owned sector can finance more funds from the banks, causing the over-stock of capital in the state-owned sector, the efficiency of capital in the state-owned sector decreases continually, and the capital-output ratio increases accordingly.Financing deregulation decreases the resource transfer from the banks to the state-owned sector, and increases the funds resource of the non-state-owned sector. But in the period when the non-state-owned sector has not developed sufficiently and the growth of non-state-owned sector still depends on the resource transfer from the state-owned sector, if we relieve the financing regulation too early, it will harm the growth of the state-owned sector and then the growthpotential of the non-state-owned sector, so the growth of the whole economy gets damage. Until the non-state-owned sector gets sufficient development and occupies a bigger share in the output, relieving financing regulation can improve the capital stock of the non-state-owned sector and then the output growth of the whole economy.Investment regulation and financing regulation can influence the investment demand of the non-state-owned sector, by this reason, the change of the degree of investment and financing regulation will cause the fluctuation of the aggregate demand and t...