A Study On Capital Deepening And Change Of Capital Productivity In The Period Of China's High Economic Growth

With the rising rate of saving and the change of investment decision mechanism since the reform, China's annual investment rate has been maintaining the level of more than 30 percent, which accelerates the process of capital formation. According to the fixed price in 1990, the annual growth rate of physical capital stock is more than 10 percent in the period from 1978 to 2006, and thus leads to high economic growth. With fast capital formation, it is highly necessary to make an analysis of the crucial problems from theory to practice, so as to shed light on the similarities and differences between the developed countries and the newly industrialized countries (NICs) in terms of capital deepening and change of capital productivity. The analyses made in this dissertation, therefore, attempt to provide an important perspective for studying the transition of economic institution and economic growth mode.With this purpose, the research starts with defining capital deepening and capital productivity as the increase of real capital labor ratio and real GDP to real capital ratio respectively. It is followed with a study on the relationship among capital deepening, capital productivity and economic growth based on modern economic growth theory and growth accounting approach. On this foundation, an empirical analysis is made on the mode of capital deepening and change of capital productivity of the main developed countries and NICs by means of the growth accounting approach in this dissertation. The major conclusions are the following.(1) As its growth process reveals, the economic development of any country starts by larger capital input. Accumulation of physical capital plays an important role in its initial stage of economic development, and thus comes the high economic growth afterwards. Capital deepening process accompanies the whole industrialization, no matter what factors induces this capital deepening process. Capital deepening plays an important role in raising the labor productivity. Furthermore, capital deepening is also induced by technical innovation, although technical innovation may be a major motivating factor of economic growth following capital deepening.(2) Compared with law of capital deepening, variation of capital productivity in the major developed countries and the East Asian countries is characterized with some rule by the empirical analysis in this dissertation. In the early stage of industrialization, capital productivity tends to be diminishing, but in the fulfillment of industrialization, it remains an approximately steady state. The economic growth process of the NICs verifies the law of capital productivity in the stage of industrialization in the major developed countries, in which capital productivity slowed down from the 1970's to 1980's, with a rebounding after the mid-1990s. No consideration of outlier of capital productivity from 1970's to 1980's, the change of capital productivity is characterized as U-shaped curve for the industrialized countries.(3) The empirical analysis verifies the negative relationship between capital deepening and growth rate of capital productivity. It also reveals that capital deepening is a major factor affecting the change of capital productivity. There is an unambiguous negative relationship between capital deepening and capital productivity variation in these countries.(4) China's high economic growth has experienced capital deepening in the same way since 1978. The process of capital deepening accelerates after the mid-1990's. But this is considered to be normal to China's economy from 1996 to 2002 by an estimate in this dissertation. Furthermore, capital deepening is endogenous by the empirical analysis. However, capital productivity of China generally has tended to slow down since 1978 at a diminishing growth rate. With regard to China's economy, unlike the developed counties and the NICs, the relationship between capital deepening and capital productivity is ambiguous. This is attributed to some Chinese factors, namely, economic system transition, structural change, and mechanisms, business cycle, and so on.Finally, the research reveals the problems with the path of long-run economic growth. In comparison with the industrialized countries and NICs, the economic growth rate in China will last a relatively long period, and slow down afterwards, which is considered to be the general economic rule.