MAGIC

Models of Aggregate Growth in China

by Don Henry

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This Note develops three small aggregate models of growth in China. Each of these models is designed to highlight different aspects of China's growth prospects. Model I is a simple capital accumulation model that calculates the rates of population growth, capital formation through savings, and technological progress necessary to meet the economic goals of the Chinese leadership. Model II examines the interactions between the rural and urban sectors of the Chinese economy. The model includes an agricultural sector, a rural manufacturing sector, and an urban manufacturing sector. Model III examines the roles of foreign borrowing and the military sector in economic growth. The models are built with minimal reliance on the reliability, quality, and consistency over time of Chinese economic statistics. The models suggest that sectoral shifts, capital inflows, and military spending are unlikely to change China's economic prospects. Savings and technological progress remain the primary instruments of growth for capital accumulation.

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