A Study On The Unbalance Between Investment And Consumption And Its Impact On China's Economic Growth

The relationship between investment and consumption is very important in macroeconomics. The coordination of them impact on both the macroeconomic stability and sustainability of the long run economic growth. Governments are pay close attention to the situation of investment and consumption in their country and design policies to ensure the balanced growth between investment and consumption. The relationship of investment and consumption in China has raised lots of debate. Many scholars believe that high investment rate and low consumption rate exists in China. In recent years, especially after the outbreak of the international financial crisis in 2008, the unbalance of investment and consumption has further intensified. So, it has a strong theoretical and practical significance to inquire the causes and future sustainability of China's rapid economic growth in the context of investment and consumption unbalance.This dissertation takes the unbalance of investment and consumption and its' impacts on economic growth in China as the research object, and sets up the research framework of the issues related to the unbalanced growth of investment and consumption in the transition period in accordance with the steps of raising questions, the theoretical model analysis, quantitative analysis, empirical analysis and conclusions. It analyzes the issues related to the unbalanced growth of investment and consumption from the perspective of theory and empirience. The details are as follows:Firstly, the dissertation surveys the theoretical literatures on the relationship between investment and consumption, and reviews the development of China's investment and consumption in the process of reform and opening up in the past three decades, and compares with other countries' in the corresponding development stages. It finds that the growth of investment and consumption in China has been unbalanced, the investment rate is relatively high meanwhile the consumption rate is relatively low. According to the traditional economic theory, the economy with such features is impossible to maintain long-term rapid growth. However, China did it.The dissertation made model based on the characteristics in transitional China to explain the reason of China's rapid economic growth in the context of investment and consumption unbalance. The test results show that the investment efficiency is relatively high in the past 30 years because the input of human capital and R&D. The analysis of the China's economic model shows that the reason of China's rapid economic growth in the context of investment and consumption unbalance is include the large investment, input of human capital and R&D, high investment efficiency, raised technology level and better institutional environment.Secondly, the dissertation analyzed the reason of the raise of investment efficiency and relatively slow growth rate of consumption. It studies the internal structure of China's investment and consumption. The analysis on the productive efficiency and regional disparities of public capital and private capital shows that, the output elasticity of private capital is larger than that of public capital, and the coefficients of the output elasticity of private capital are positive and significant meanwhile that of public capital are relatively insignificant. So, the government needs to take various measures to encourage and give full play to private capital in economic growth. And then, the dissertation studies the substitution effect of public consumption on private consumption and the result shows that China's public expenditure has a certain degree of crowding-out effect on private consumption. In the backdrop of the current financial crisis, we should focus on the private consumption in the period of stimulating consumption demand.Thirdly, it studies the dynamic relationships among consumption, investment and economic growth in China, using the VAR model and the sample data in 1953-2008, and systematically analyzes the mechanism among the consumption, investment and economic growth using impulse response function, Granger causality test, variance decomposition model. The results show that, there is the strong the current period correlation between economic growth rate and investment rate, approximate symmetry and similar fluctuations pattern in the impact relationship. And there exists the stable relationship and between economic growth rate and investment rate. The volatility model of consumption rate is opposite to the two variables above mentioned. Economic growth is Granger cause of the investment rate and consumption rate, not vice versa. Meanwhile, there exists two-ways Granger causal relationship between investment rate and consumption rate. In order to enhance the output effect of investment, the government should improve the investment structure, strengthen the guidance of loanable funds, the macroeconomic policies should focus on stimulating consumption.Finally, it summarizes the cause of the unbalanced growth of investment and consumption. China's high investment rate is primarily due to transitional period. China's low consumption rate is mainly due to increasing income distribution disparity, imperfect financial markets as well as the uncertain factors of income and expenditure etc. Author believes that the unbalanced growth of investment and consumption in China did not significantly affect the rapid economic growth in the past three decades, but the historical experience of the other countries has shown that this unbalance will affect the sustainability of China's rapid economic growth in the future. In the end, author puts forward to the corresponding policy recommendations to solve the problem above mention and keep the long-term sustainable development of China's economy, and puts forward to the direction of further study.