Abstract
According to Shen and Onishi, China's economy is predicted to reach zero-growth in 2040 and 2033, respectively. Both studies have attracted significant attention in academia. However, their theoretical models have two inadequacies. First, the Euler equations used to depict the dynamic path of the economy are not derived. Second, the labor growth rate is not incorporated into the model. These inadequacies make their empirical projections arbitrary under strict assumptions. Therefore, we derive the Euler equations of the model using dynamic formulations by incorporating the labor growth rate into our model. Using the Euler equations, we depict the path of the Chinese economy from 2009 to 2050. The result indicates that, in 2026, China's GDP would surpass US GDP. Moreover, around 2050, China's GDP is projected to be almost 2.22 times higher than US GDP, while the GDP per capita will be half the US GDP per capita.
Highlights
As China’s economy has matured, its real GDP has slowed significantly, from 14.2% in 2007 to 6.9% in 2017 (International Monetary Fund 2018)
The Marxian optimal growth model has attracted significant attention in academia and has been applied to several empirical studies. (Literature on it has been published in Japanese, English, Chinese, and Korean, with studies in World Review of Political Economy, vol 2, no. 4, too.)1 To understand the Marxian optimal growth model, we explain three important considerations of this model according to Yamashita and Onishi (2002), Onishi (2011), and Onishi (2015)
For the purpose stated in the previous section, we introduce the process of establishing the prediction model of the Marxian optimal growth model
Summary
As China’s economy has matured, its real GDP has slowed significantly, from 14.2% in 2007 to 6.9% in 2017 (International Monetary Fund 2018). To derive the long-term capital accumulation path, Yamashita and Onishi (2002) formularized this issue as the issue of maximization of production of the means of final consumption using the two production functions introduced above In this scenario, the Marxian optimal growth model is a normative model that considers the maximization problem under a constraint condition. Onishi (2016) assumed that the labor and capital shares in the production goods sector would decrease linearly in the long term, while Shen (2011) assumed that the capital–labor ratio would continue increasing at the average speed at which the capital ratio increased between 1981 and 2005 Both studies estimated the time needed to reach zero-growth by concurrently using the calculated optimal capital–labor ratio, such assumptions are unrealistic. In the last section, we depict the path of China’s economic growth from 2009 to 2050 and describe the status of China’s economy for 2050
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