Abstract
ABSTRACTWe construct a structural econometric model to measure partially the economic effects of political movements in China. Consumption, or equivalently investment, is determined by a central planner trying to maximize a multiperiod objective function. Political events are modeled by exogenous changes in the shocks to productivity and to investment which affect the time paths of major economic variables. Effects of the events are measured by comparing the time paths generated by the model with and without the changes in the shocks. The dynamic optimization model is estimated using data from 1952 to 1993. In contrast with our earlier work, we assume a trend‐stationary process for log total productivity rather than a random walk process and estimate that without the Great Leap Forward Movement output per capita in China up to 1993 would have been on average 1.18 to 1.71 times as great. Without the Cultural Revolution the corresponding figure would have been 1.08 to 1.12 times as great.
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