| The issue of dynamic efficiency is central to the analyses of capital accumulation and economic growth. This paper investigates dynamic efficiency of Chinese economy. In the historical order of theoretical developments of economic growth models, the possibility of dynamic inefficiency, that is, the possibility of capital over-accumulation is firstly analyzed in exogenous and endogenous OLG growth models; then the dynamic efficiency of Chinese economy is assessed utilizing methods of numerical simulation, net cash flow and econometric method of co-integration and error-correction.The major results of this paper consists of: firstly, whether in exogenous neoclassical growth models or endogenous new growth models, the possibility of dynamic inefficiency may arise not depending on the origins of technological progress; secondly, the fundamental reason of economy's dynamic inefficiency is due to what Shell called "double infinity", that is, there exist infinite agents and commodities in OLG economy; thirdly, based on the analysis of endogenous growth model with human capital accumulation and technological progress through learning-by-doing, it is found that the relative insufficiency of human capital to physical capital is one of the reasons causing dynamic inefficiency; fourthly, utilizing methods of numerical simulation, net cash flow and econometric method of co-integration and error-correction, the dynamic efficiency of Chinese economy from 1978 to 2003 is empirically assessed and the test results show on balance the dynamic efficiency is become worse, and, in particular, in the several years entering the 21century, the Chinese economy is dynamically inefficient and too much physical capital is accumulated; lastly, through analysis of empirical determinants of capital profitability, it is found that technological progress is the main determinant of capital profitability which in turn is the main factor determining Chinese economy's dynamic efficiency.One of the main policy implications of this paper is that to improve Chinese economy's dynamic efficiency, the ratio of human capital investment relative to physical capital investment should be raised. |
