The Impact On Chinese Macro-economy And Various Industries By The Large Aircraft Project: A CGE Approach

Development of large aircraft is a strategic decision made by Central Committee and the State Council, but also is the aspitation of all country. Aviation industry in our counry has developing more than 50 years and now has technical basis and metarial basis to develop large aircraft. Development large aircraft by our effort and intensificayion the market competion of aviation industy are benefit to transform the economy growth mode, drive the progess of science and technology, enhance a nation's comprehensive strength and international competitiveness, and accelerate the pace of modernization. All the factors are the background of this study. What and how the large aircraft project will impact on Chinese macro-economy and various industries are deserving study. Due to the complexity of the aircraft manufacture industry and coving many other industries, the traditional quantitative methods or experience can not make accurate conclusion. As a tool for systematically analysis, CGE model include detailed economic structure and clearly illustrate the change of one country's ecomomy caused by policy shock. Therefore, this article attempts to introduce a China dynamic CGE model——MCHUGE model to study the impact on Chinese macro-economy and various industries are deserving study caused by the large aircraft project.This paper consists of five sections. Section 1 is literature review with a thorough introduction to CGE theory, application status of CGE model and present situation of the large aircraft project; section 2 compares CGE model with general econometric model and analyzes that whether the model is suit for this paper; section 3 builds the core MCHUGE model, a multi-sectoral single country dynamic CGE model based on Chinese economy; section 4 applies the Solow residual value and co-integration method to estimate the relationship between domestic investment and the China's technological progress and does stimulation study, including setting the stimulation scenarios according to the investment on large aircraft project, explaining the results and analyzing the impact on Chinese macro-economy and various industries by the large aircraft project from output investment and employment; Conclusions and future extensions shall be presented in section 5.The main innovation of this paper performs on that it systematically studies the economic impact of large aircraft project by using CGE model and it is the first time in China.The simulation results indicate that between the domestic investment and the technology advancement, there is a long-term stability balanced relation; when the large aircraft project initiates, it will exert a positive impact on Chinese macro-economy and China shall maintain a stable GDP increase in a long time. Employment will sharply increase in the short run while in the long run it will decline a little; yet the general trend is still positive. Real wage will continue to go up slowly; the capital stock and investment will keep positive deviation in a long time. However, the production activity level of some industries will be suffered from the technological progress due to large aircraft project.