Capital Formation, Capital Efficiency And Economic Growth In China

During the past more than30years of the reform and opening up, China’s economic development realized the remarkable growth, and laid solid foundation for the comprehensive well-off society and realizing modernization. Research shows that, capital investment is the main factor in the causes of the production factors to stimulate the economic growth in China. Generally speaking, for a country or region’s economic growth is concerned, the capital formation is the engine, and the capital allocation efficiency is the key. At the beginning of the reform and opening-up, as well as most developing countries, capital scarce is the most major obstacle for China’s economic growth and development, and the reform&open policy not only mobilized domestic savings and activated the savings into investment capital formation mechanism, improve the microcosmic capital allocation efficiency; but also attracted foreign capital by cheap land supply and preferential taxation policy, and promoted export-oriented economy development and increased the economic growth by the combination of domestic cheap labor resources. So we can say the domestic capital formation and foreign capital inflows, plus the acceleration of large-scale capital allocation efficiency to certain extent, are China’s largest driving forces during30years of the economic growth.From regional perspective, based on the difference of different regions of the income level, marginal propensity and capital marginal payment level, each region has different scale and rate of capital formation, and capital is always flow from marginal lower-income areas to high regional marginal returns areas. The capital formation and flow not only affect capital allocation efficiency of the different areas, but also caused the different level of regional economic development. With the reform and opening of China, the further developments of regional economic growth show unbalance of corresponding capital formation and capital efficiency. Therefore, analysis for the relationship of capital formation, capital efficiency and economic growth, and explain the economic growth of the capital formation factor and explore the difference factors of regional economic development, whether in theory or in practice is very significant.In this paper, based on the theory of economic growth and economic development, we did an empirical study of the actual status of the national and regional capital formation and capital efficiency and the influence for economic growth using the data of national level and the typical area at the provincial level in regional economy by econometric analysis method. On the one hand, we did the theoretical research on the capital formation, capital efficiency and economic growth of general relationship on the basis of the domestic and existing foreign theory through the logical deduction and mechanism analysis. On the other hand, using the mathematical methods and measurement methods to our country and the typical regional capital stock, we did empirical analysis estimate of the capital formation path, and analyzed the change law of our country’s capital formation and trends. At the same time, by establishing econometric model of the capital formation, capital efficiency and economic growth, the paper makes an empirical analysis of the relationship between capital formation and economic growth in China and expounds the role of capital allocation efficiency for regional economic growth differences. Further, according to the general theory of capital formation, this paper identified the influence factors of capital formation, and established the measurement model to test it. Finally, some policy suggestions are proposed out for the capital formation and improve effectively capital allocation efficiency measures, so as to narrow the regional economic development differences and promote sustainable development based on empirical analysis.First of all, based on the related literature of theory and empirical analysis at home and abroad, we defined capital formation, capital efficiency and economic growth. The research shows that economists at home and abroad, agree with the vital role of the capital formation and economic growth. Developing countries is facing low-income under the vicious cycle of poverty, low savings rates and capital formation rate which leads to lower economic growth. Further research shows that, since the reform and opening up, China’s continued economic growth mainly based on high savings rate of capital formation rate in the main economic variables. The capital formation is the main power for macro economic growth, and the difference of the capital formation is one of the main reasons for China’s economic development process of urban and rural differences, the district difference, and the imbalance of the industrial structure. At the same time, different regions and different industry capital efficiency also have many differences; capital efficiency difference is not only the reasons for economic development in different areas, but also the result of the development difference of the economy.Second, in this paper the general relationship for capital formation, capital efficiency, and economic growth are analyzed in theory based on the definition of the capital formation, capital efficiency. In modern economics, the capitals generally are divided into three kinds of physical capital, financial capital and human capital, and this paper discussed the capital is refers to the physical capital. The capital formation is the increase of the capital stock and production and profitability of the formation and growth in economic and social system, or savings or capital accumulation to deduct the depreciation updated "net investment" or "net capital formation". Capital efficiency refers to the use efficiency in economic system as the inputs of the capital of the elements, by extension, capital efficiency is the pareto optimality of capital allocation efficiency, including capital output efficiency, capital accumulation efficiency, the capital allocation efficiency and capital flow efficiency of the overall efficiency of the system, and in narrow sense said, capital efficiency is refers to the capital output efficiency, and in this paper we using capital efficiency refers to the capital efficiency in the narrow sense that roe. When it comes to interregional analysis, we also discuss the capital allocation efficiency.Again, this article analyzed the source of the capital formation, the capital formation mechanism and the capital formation path as well. On this basis, we used the most popular capital stock estimation method, the perpetual inventory approach, did a simple measure for capital stock on1978-2009for the country and in different areas of the typical provinces (jiangsu, shandong, zhejiang, guangdong, hunan, hubei, henan, hebei, gansu, qinghai, ningxia, yunnan), and analyzed the national and regional capital stock sequence data development situation respectively. Then, with indexes of capital-output ratio and capital-marginal output ratio respectively, we analyzed the path of China’s capital formation from two perspectives of timing and areas, and summarized the change rule of capital formation and trends. The results found that in eastern provinces with capital-output rate compared the western province, capital-output ratio to be higher, volatility to a larger extent, and the west province capital growth and economic growth also is more complicated.Then, we choose1979-2009years of the national net capital (the capital formation) and gross domestic product (economic growth) data, makes a co-integration relationship analysis and inspection and Granger causality test by the annual capital formation and economic growth. And then, based on the selection of efficiency index and contribution index we did an analysis of China empirical capital efficiency in the economic growth. In the paper we used the Cobb-Douglas function for the capital formation, capital efficiency and economic growth based on labor, capital, including human capital and technological progress the four elements on the economic growth of the role of the interpretation. Based on the Solow’s economic growth theory to describe the relationship of the capital formation and economic growth, we used the fixed effect variable coefficient model based on China’s eastern, central and western regions of the typical provinces panel data of regional capital allocation efficiency to carry on the analysis. Conclusion:(1) from the capital formation to see in east China, capital formation and elasticity effect significantly higher than the western areas, but due to the influence of the economic environment at home and abroad, China’s eastern, central and western capital contribution of the formation of economic growth are presenting negatively correlated.(2) From the view of capital relocation efficiency, there are capital inverse flow trend of economic development from the low level area to the higher level of economic development.Finally, on basis of the capital formation rate overall description, we established the measurement model of capital formation affecting factors from savings supply, the investment demand and other factors three choices for capital formation factors of per capita income, savings rate index:, GDP and investment cost coefficient, the second industry accounts for more than, institutional change, and did empirical analysis from the national level and the typical regional level and the provincial level respectively. We select1978-2009years of time series data and provincial panel data, and test the impact of indicators. The empirical analyses have the following conclusion:(1) the eastern areas of the capital has been marginal returns relative saturated state, on the contrary, the western region capital formation rate relatively high.(2) The main factors of influence the capital formation mainly include savings supply of economic growth, investment demand and rate of the savings and the rate of the second industry.(3) The implementation of the western development strategy realized the reasonable allocation of resources and capital, to provide effective policy support, and, to some extent, improve the rate of capital formation, and optimize the capital formation path.To sum up, generally speaking, China has gone from the beginning of the reform and opening-up capital shortage and transition to the state of labor surplus and capital surplus; developed region’s labor scarce and undeveloped region’s capital scarce coexist phase is obvious from the view of the partial condition. If this problem cannot be effectively saluted, then, we will not only further lead to high growth of unbalanced district development, and in the long term will restrict our sustainable economic growth. Therefore, during promoting economic development mode change process, we should realize two changes:one is from promoting the overall capital formation to promote the capital formation in less developed areas; the second is to pay more attention to the capital allocation efficiency changes. Thus, we are in need of the pursuit of innovation, improving capital output efficiency at the same time, to change the system of investment, and vigorously promoting interregional industry shift.