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Capital in the twenty-first century in China

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  • Long, Zhiming
  • Herrera, Rémy

Abstract

We propose a method of constructing a general capital stock à la Piketty for China from 1952 to 2015 (Part 1). The elasticities of income with respect to this capital are econometrically estimed through equations which also integrate human capital and R&D. The tests are performed within frameworks of modern neoclassical macrodynamic models. On this basis, we calculate an implicit rate of return of capital to test the validity of what Piketty states as a “fundamental inequality”, comparing rate of return on capital and income growth rate in the long run. This inequality is verified, but appears to be tendentiously challenged over the last decade. Then, Piketty's “second law”, arguing that the coefficient of capital tends to be equal to the ratio between savings rate and income growth rate, is examined. This “second law” is to be viewed as a process of asymptotic convergence in the long term (Part 2). These results are compared with new estimates for the post-1978 sub-period of “capitalism with Chinese characteristics”, but the fundamental inequality is no longer verified, and it is not reasonable to affirm the validity of the “second law” (Part 3). Finally, we address the issue of the inequalities in China.

Suggested Citation

  • Long, Zhiming & Herrera, Rémy, 2018. "Capital in the twenty-first century in China," China Economic Review, Elsevier, vol. 50(C), pages 153-174.
  • Handle: RePEc:eee:chieco:v:50:y:2018:i:c:p:153-174
    DOI: 10.1016/j.chieco.2018.03.002
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    More about this item

    Keywords

    Capital; Rate of return; Growth; Economic law; Econometrics; China;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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