Economic Growth, Local Government Competition, State Capacity And Structural Imbalances

This research consists three main parts:(1) Under international experiences, howcan one country’s economic growth speed influence the country’s net saving ratio,both in theory and empirical ways;(2) In China, how will the competition betweenlocal governments influence economic structure overall theoretically;(3) Underinternational experiences, what’s the relations between one country’s economicgrowth, the taxation ability of government and the level of democracy in this countrytheoretically.The above three parts are three different chapters in this essay, but they all areoriginated from the idea to analyze, explain and predict the economic structure ofChina. The first part is founded under international experiences, from the angle ofeconomic growth; we try to understand the effects of economic growth on thecountry’s net saving. The main conclusion is that one country’s net saving ratio whichalso can be known as the country’s current account ratio of GDP is a U-shapedfunction of the country’s economic growth speed. Theoretically, this chapter first findsout the saving rate is a increasing convex function of economic growth rate whileinvestment rate is a increasing concave function of economic growth rate, then we canuse the accounting equation to get the relations between the net saving rate andeconomic growth speed. Next to that, we will extend our former small-country modelinto a two-country model. Although both models are under international context,somehow their conclusions are different. Under the two-country model, both countriesare the same in all aspects, then one country (assuming the home country) has a oncefor all time technology improvement, during the transition process to the final stationary equilibrium, the home country will be the creditor country which alsomeans the sum of home country’s current surplus will be positive during in the end.Empirically, this chapter will use the panel data of216countries during the time fromyear1960to2010to verify the results from above models’ conclusions. In theregressions, we will control several structural variables, such as: total population,GDP per capita (in2000year constant$), GDP growth rate and its square, etc. Afterall, regression results are all in consistent with the results from the theoretical model.At last but not the least, we use the above regression results to analyze China’s netsaving rate in the past thirty years, calculate both the structural effects and theperiodic effects. And we will make several predictions about the saving rate in thenear future, based on different assumptions.The first chapter analyzes the effects of one country’s economic growth oncurrent account under the international experiences, the second chapter is about togive an explanation about China’s own specific economic structure phenomenon (highsaving rate and low consumption rate) from a political point of view. Under theframework of a political tournament, local government becomes productivegovernment which favors investment in production activities and ignores the basicneeds of people for public goods. The productive feature will increase the saving ratioof the government and also induces a subsidy to the firms in some way which makesthe firm more disposable income and much more propensity to save or invest. Thischapter will use an transformed OLG model which combines the traditional OLGmodel with the process political tournament to depict the above story, we found outthat: the more intense incentive in the political tournament, the higher GDP, also thehigher saving ratio and the higher net saving.The third chapter once again zooms out the angle to the world, according to theWDI data; three indexes are positive-correlated: GDP per capita, the ability forgovernment to levy taxes and the constraints on the government from the people. Thischapter then chooses three aspects of state capacity: the ability for government to levytaxes, the protection of individual property rights and the constraints on thegovernment from the people. Based on that, I’ll make these three capacities endogenous by incorporating them into one two-period political-economic model. Inthis model, these capacities can be enhanced only by the continuously investment bythe government. The main conclusion is that these three capacities are complementsin some way. Also this paper has discussed some other conditions which mayinfluence the development path of state capacity, such as: domestic income gap、affluence of natural resources、the challenge from exterior war and interior war, etc.The conclusion from this paper can be easily verified because there are numerousinternational cases and cross-section data which are consistent with it. At last but notthe least, this paper also put out a claim that only the economic strong plus politicalweak states can bring sustained development and growth to its people.