A Study Of The "U-shaped Curve" Relationship Between Private Consumption-output Ratio And Urbanization Rate In China

In those developed catch-up-with-and-surpass economies, consumption-output ratio have went through a decline while the urbanization rate rose up rapidly, and consumption-output ratio started to rebound after urbanization rate reached to a certain level. In addition, since1984, China’s consumption-output ratio has also been decreasing instead of increasing while the urbanization rate going up. So, has the seemed "U-shaped curve" relationship between consumption-output ratio and urbanization rate become the universal law in the developing process of a country? What are the causes for the "U-shaped curve" relationship? And would raising the urbanization rate be an effective way to alter China’s secular trend in consumption-output ratio? To start, this paper constructs a "urban-rural" theoretical model, demonstrating the "U-shaped curve" presumption and that the causes of the "U-shaped curve" is based on the resultant force of increasing of GDP per capita, alteration of population structure, urban-rural income gap and gross fixed capital formation ratio (as GDP),which are key characteristics of urbanization. Besides, using panel data from187countries in the period1990-2010and from31provinces of China for2005-2011respectively, this paper has proved the "U-shaped curve" once more. And constructing a cointegration and error correction model, this paper obtain a long-term stable relationship of China’s private consumption rate, GDP per capita, urban-rural income ratio and gross fixed capital formation ratio. Lastly, this paper maintain, given the current system of urban-rural dual structure and extensive urban developing model led by the government in China, households’ consumption ratio is more likely to remain at a low level of35percent even if the urbanization rate climbs up to70-75percent. Therefore, simply raising the urbanization rate is not an effective way to alter a secular trend in consumption-output ratio. Urbanization should be developed with the same pace of the reform of urban-rural dual structure system, transformation of the body of urbanization, deepening the marketability reform and upgrading of industrial structure.