A Study Of Return On Capital And Guangdong Urban And Rural Capital Flow

Although China maintains rapid economic growth, but urban-rural differences is also apparent. Rural funds outflow to urban area continuously, this phenomenon seriously deteriorate the balanced development of the whole economy. According to the Guangdong statistics, the net amount of fund flow from rural to urban expanded from 11.365 billion RMB in 1995 to 47.021 billion RMB in 2013, by two ways of taxes and funding appropriation. In my theory, the reason is poor investment environment of rural area, which causes the actual adjustment cost of rural area is higher than that of urban area, so the actual capital return rate of rural area is lower than that of urban area.Combined with statistical data of China and Guangdong province from 2004 to 2014, using the Q theory containing adjustment cost and asset pricing theory based on production, establish a quadratic adjustment cost function of physical capital, using Stata software and generalized method of moments to estimate the respective adjustment cost parameters between urban and rural areas, then put them into the formula of return on capital, calculating the corresponding capital return rate for comparative analysis.Judging from the formula of capital return rate derived by this paper, the factors affect the return rate as below : share capital, capital-output ratio, the ratio of capital investment, depreciation rate and adjustment cost parameter. adjustment cost will decrease the capital return rate, depreciation rate negatively correlate with the capital return rate.In this paper, the study result of Guangdong province shows from 2004 to 2014, not adding the adjustment cost, the average rural investment rate of 11 years is 31.88%, the corresponding rate of urban area is 29.74%.However, after adding the adjustment cost, the corresponding rate of urban area is 12.23%,the average rural investment rate of 11 years is only 8.46%. the main reasons are the poor investment environment and big investment friction in rural areas. The gap between rural and urban areas, not only bring imbalanced development on China economy, also lead to many serious social problems.In order to narrow the gap, the only way is to improve the investment environment in rural areas, promote integrative development of urban and rural areas.