The Economic Explanation For Insufficient Consumption Of Household In China

As one of the three important engines of economic development, consumption is a great part of macroeconomic. Understand consumption is the basic for understanding macroeconomic. Nowadays a big problem in China is that the demand of household consumption increases obviously, but the ratio of household consumption is still turn down, which lead the increase of consumption behind economic growth. This is called the consumption mystery in China. How to explain the phenomenon?Meanwhile, the existed economic theory can explain what happened in China is an important topic on which economists debate fiercely. There are two points about it: one viewpoint thinks that the economic theory is specific, and China should build its own economic theory rather than copy the western countries'economic theory. The other viewpoint thinks that the economic theory can applied in every country, which is also useful for China. Then, which viewpoint is more suitable for China?The essay reviews some studies on household consumption in China, analyses the relationship between the macro-closure in the CGE model and macroeconomic theory. The essay uses Unit Root test and Cointegration method to choose the suitable policy for shock variable which is needed for the CGE simulation. But we can't find out a better variable from the existed policies. So the essay changes the choice strategy and takes China's entry into WTO for simulation scenario, in which tariff take as an important shock variable in CGE model. Through the analysis for the simulation results from different choice of macro-closure in the standard CGE model, our paper discoveries that the consumption in simulation result of the CGE model which guided by Keynesian theory is more fitness to the real happened in China. It means that the consumption mystery is able to be explained, and it also helpful for testing which macroeconomic theories are more convenient for China.The essay draws the following two vital conclusions: one is that the Keynesian theory can explain China's consumption mystery powerfully; the other is that the Keynesian theory are more suitable for China.