China's Aggregate Supply Function

The start point of this thesis is the examination of the micro unit behavior in China. And then it describes the efficiency difference and distribution of the micro units. Using the aggregate condition of the micro production function for reference, we derive the aggregate supply function and aggregate supply curve of China's economy. By using this aggregate supply function and supply curve, we analyze the aggregate supply condition of China's economy since built up of the People's Republic of China. At last part, we explain that the improvement of the micro foundation of the economy is the key point to improve efficiency of the macro supply capacity. Only the institutional innovation can increase the efficiency on the micro level, and then increase the potential growth capacity on the macro level.Chapter 1 of the thesis describes the gradual reform of the state-owned enterprises and the gradual expansion of the non-state-owned business. Because of the gradual mode, the formal dominated state-owned enterprises kept stable expectation and rational behavior. Their product objective function changed step by step from planning output to profit maximum. The gradual reform of the state-owned enterprises ensured not only the stable of the aggregate supply but also the stable of the financial avenue. These two played as the determinant factors that kept the social stable in the shortage stage of China's economy. The first one made it possible for the consumer to get the basic consumption goods. The last one made it possible for the government to finance part of the reform cost. Also because o f the gradual mode, the non-stated-owned business which outside the old planning system could develop themselves under a low tax burden and relax competitive market situation. The market factor took effect increasingly. The business action and the regulation became inerratic. Up to now, the gradual reform mode in China is much better than the shock mode in the east Europe and Russian. But there is still an obvious difference between the state-owned enterprises and the non-state-owned ones. That is the state-owned enterprises have to keep a certain amount of output influenced by non-economic factors even at a loss condition while the non-state-owned enterprises will stop their product process.Chapter 2 of the thesis describes the micro product function and the micro unit behavior. It examines the enterprises' efficiency difference and why this difference occurred. The differences of ownership, industries and regions all played important roles in the affection of the enterprises' efficiency difference. In fact, all this factors influenced the technology choice, the inner management and the outside environment of the enterprises. The distribution of the enterprises' efficiency between ownership, industry and district or inside one industry showed nearly as normal distribution. It means that, the high level efficiency and the low level efficiency product capacity are at lower proportion. A mass of the product capacity is at the left-of-center of the efficiency level. We describe this kind of efficiency distribution as Beta distribution.Chapter 3 of the thesis discusses the topic relative to the aggregate product function. By now, the aggregate production function plays a core role in modern economics and growth theory. But at 1940s, the criticism of Mrs. Robinson hit the reasonable existence of the aggregate product function. Thus, Solow and other people began to establish the micro foundation of the aggregate product function. Thischapter introduces the method of using efficiency distribution to aggregate the micro production function to a macro one and the continuity and integrabel condition of micro production function should meet found by Sato. All these method and conditions will help us on deriving the aggregate supply function and aggregate supply curve. In this chapter, we discuss with short run supply problem and need not care about the aggregate problem of the capital.In chapter 4, the aggregate supply funct...