Social Sciences in China (Chinese Edition)

No.3, 2016

 

Catch-up Industrialization and Structural Imbalances in the Economy

(Abstract)

 

Zhang Bin and Mao Rui

 

By introducing into a two-sector overlapping generations model a policy mix supporting the industrial sector and by studying government influence on key economic structure indicators (saving rates, the real marginal rate of return on capital, and the effect of the labor-capital distribution structure in the industrial and non-industrial sectors), we found that the policy of industry support has three long-term effects on the balanced growth path. It stimulates the flow of labor and capital to the industrial sector and raises the sector’s relative capital stocks and output; reduces consumers’ final consumption of industrial and non-industrial products and raises saving rates; and depresses the real marginal rate of return on capital. Numerical simulation results show if the government applies a policy mix that discriminates against the non-industrial sector while stimulating the industrial sector, then when government increases demand for additional industrial products equaling around 10% of GDP, by strategies such as investing in infrastructure construction, the saving rate will rise by 2.6 percentage points, while the real marginal rate of return on capital will fall by 0.4 percentage points.