Investigation Of Dynamic Efficiency In China

Diamond model indicates that free market equilibrium maybe not the optimal stateof the society, the capital level determined by free market equilibrium maybe higher orlower than capital level decided by the Golden rule. Especially when it is lower thancapital level decided by the Golden rule, the society is not in Pareto optimal state becauseof too much capital; this is the well known Capital accumulation dynamic inefficiency inMacroeconomics.After the appearance of dynamic inefficiency theory, both domestic and foreigneconomists have developed many different models to investigate the dynamicinefficiency conditions in various economic entities. Among these models, AMSZ ruleraised by Abel in1989is used most frequently. This paper is also built on this rule toinvestigate the dynamic inefficiency condition in China.Chapter1introduces the process of the appearance and development of dynamicinefficiency theory through the discussion of Solow model, Ramsey model and Diamondmodel. Chapter2introduces AMSZ rule and uses the rule to investigate the dynamicinefficiency condition of China between1992and2010. Then it arrives at the conclusionthat China was dynamic inefficient during the period. Chapter3dwells on the reasons ofdynamic inefficiency in China, including extensive mode of economic growth, influenceof the high savings rate, the dual economic structure in China, and government-leadinginvestment. Chapter4puts forward approaches to improve present dynamic inefficiencycondition, such as changing the mode of economic growth, decentralizing savings fundthrough various channels, encouraging outward investment, and promoting the reform ofthe government institutions.The aim of this paper is to reach an objective and accurate estimation of dynamicinefficiency condition in China, as well as its reasons and suggestions. Under pressure ofthe European debt crisis and worldwide economic slowdown, China also has seeneconomic downturn, voices of increasing government investment rise from all directions;this paper may let people abandon the unwise suggestion.