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A Study on the Dynamic Evolution and Regional Differences of Public Capital and Return to Capital in China

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  • Zhihong Wang

    (School of Statistics and Mathematics, Central University of Finance and Economics, Beijing 102206, China)

  • Wenjia Tian

    (School of Statistics and Mathematics, Central University of Finance and Economics, Beijing 102206, China)

Abstract

Public capital plays a key role in national economic production in developing countries, and it has become the focus of factor reform in China. This paper aims at studying the dynamic characteristics of China’s public capital and the return rate. To this end, this paper inventories the public capital stock from 1978 to 2017; constructs a two-sector model to derive the necessary condition for optimal investment related to the return rate, and empirically tests it; estimates the output shares of the two sectors and calculates the rate of return to capital; and illustrates the dynamic evolution of public capital and the return rate from the time and regional dimensions. The study shows that, first, public capital has grown significantly. The portion of public capital held in the form of state-holding is increasing year by year. However, the proportion of public capital to total capital has decreased from 81% to 35%. Second, the growth of public capital has effectively balanced the gap of capital between regions. Third, the rate of return to capital has been decreasing, with two sectors’ return rates having converged in 1981 and in 2010–2013. This paper measures the stock of public capital and its return rate, which is beneficial for formulating the policy of public capital in economic production and distribution, as well as exploring the path to achieving common prosperity.

Suggested Citation

  • Zhihong Wang & Wenjia Tian, 2022. "A Study on the Dynamic Evolution and Regional Differences of Public Capital and Return to Capital in China," Mathematics, MDPI, vol. 10(19), pages 1-24, October.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:19:p:3622-:d:932703
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    References listed on IDEAS

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    5. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
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