Macrostructure of Consumption and Economic Growth: Empirical Analysis on China (1952-2004)

Abstract

This paper makes an empirical research on the relationship between rural household consumption, urban household consumption, government consumption and economic growth using time series data of China from 1952 to 2004. Results show that: (1) China's economic growth mainly depends on domestic demand, which includes consumption and investment. Consumption demand has the most effective influence on economy among the three major kinds of demands of consumption, investment and net export. Urban household consumption has the largest pulling force on economic growth. Next is rural household consumption, and government consumption has the least pulling force. (2) Urban household consumption has great influence on economic growth, so we should quicken the step of urbanization and at the same time enlarge urban household consumption. (3) Rural household consumption still means very important to economic growth, so we must give weight to income and consumption of rural residents. Increasing peasants' real income and booming rural market are very effective policies to stimulate our country's long-term economic growth. (4) Control the government consumption to a moderate scale and improve the macrostructure of consumption. Our research makes clear that pulling force on economy of the government consumption is much weaker than that of urban and rural household consumption. It is very limited. So economic growth should not depend on government consumption blindly, but on residents' consumption. (5) Short-term marginal effects of rural household consumption and fixed capital formation are smaller than their long-term marginal effects. However it's the opposite in the situation of urban household consumption and government consumption. As a result, encouraging residents' consumption and quickening the step of urbanization construction are effective measures to stimulate our country's long-term and continuous growth.