Research On The Relationship Between The Capital Return With The Urban-rural Capital Flow

Existing research results have shown that there is "Lucas paradox" between urban and rural areas in China,that is,the capital flows from rural areas with high capital returns to urban areas with low-capital returns.Long-term outflow of rural capital is not only harmful to rural capital accumulation and economic development,but also not benefit to narrowing the gap between urban and rural areas.Many literature suggests that profitability is the fundamental motive of capital flows.The previous study of the "Lucas paradox" only focus on the lack of productive elements in the perfect market hypothesis,or think about existence of the friction factors,unfortunately the restriction of the former is too strong,and the latter neglect the profitability of capital flows.O n the basis of the combination of predecessors,this paper explains the "Lucas paradox" between C hinese urban and rural capital flo ws from the perspective of capital profitability by providing the method of including adjustment cost,and then clarifies the impact to the capital return of market and non-market factors,and explore the rural development potential and provide the future research direction.In China,capital flows from rural to town in financial channels.Predecessors mainly focuses on fiscal channels and financial channels to research unrban and rural capital flows.But in the fiscal channels,the capital flows are more for the purpose of government transfer payments,instead of the profitability.In the performance of the provinces,if we add up the capital flows of the fiscal channels and financial channels,we find the inseveral western provinces including Tibet Autonomous Region,Q inghai Province,N ingxia Hui Autonomous Region,Xinjiang Uygur Autonomous Region and a northeastern province—Heilongjiang,the rural capital inflows,because fiscal channels obscure the real flow of financial channels.But if we see the capital flow in the financial channels as the object of study,we found that the capital in the country and the provinces are net outflow.The cumulative net outflow of the country is 5007.02 billion yuan.Chinese urban and rural areas exist Lucas paradox.Based on the Bai method,we measure the rate of capital return of urban and rural areas.At the national level,Chinese rural areas have higher rate of return on capital.Under the generalized caliber,the rural areas have higher Sharpe ratio,which can't explain the capital outflows of the rural areas at the point of the view that profitability of capital flows,so there is Lucas paradox between Chinese urban and rural areas.At the provincial level,the rural areas of Beij ing,Shanxi,Jiangsu,Jiangxi,Hubei,Sichuan,Guizhou and Gansu have a higher rate of return on capital in eight rural areas,especially Jilin,Guizhou and Gansu three provinces,the rural areas have a higher Sharpe ratio,these results are unable to provide a reasonable explanation of the outflow of capital in rural areas.Based on the method of the rate of capital return including the cost of adjustment in our paper,the results can be a good explanation of capital flows between the urban and rural areas,this can provides a new perspective to explain the Lucas paradox.In this paper,the constructed method of calculating the return rate of capital is the further promotion of the Bai method and Lucas method.The investment friction are described in the form of convexity adjustment cost function,and the investment theory including investment friction is applied to the asset pricing,the current rate of return of capital is the ratio of the sum of the future dividend and the marginal value of future capital to the marginal cost of current capital,and then use the moment estimation method to estimate the adjustment cost parameter of urban and rural areas and substitute it into the formula of capital return rate.The capital return rate of the urban and rural areas in this country is 9.7461% and 9.6142% in the generalized caliber respectively,10.0530% and 7.5668% in the narrow caliber respectively.It is clear that the urban capital has higher return on capital and should attract more capital from rural to urban areas.The reality is just able to observe the flow of 5007.02 billion yuan of funds to the town,which made a very good explanation.At the provincial level,there is a higher rate of return on capital in the urban areas in the provinces,expect Beijing,Shanxi,Guizhou and Gansu provinces.But in all provinces,urban areas have a higher sharp ratio,so rural areas are net outflow of funds,fortunately the reality is true.Rural development has great potential,just reduce investment friction.In the case of anti-factual tests,when the rural area has the same adjustment cost parameters,the simulated rate of return on capital will grow at a nearly constant rate,that is,when optimize the investment environment of the rural areas(agriculture)to the town(non-agricultural)level,the unit capital will be twice higher than the current return,which means huge potential for development in rural areas.