| Whether to individuals,businesses,or country as a whole,the return on capital rate is an essential economic metric.From the academic perspective,this rate is a valuable indicator of the economic health of a society.Due to its immense significance to various sectors,the means through which it is calculated and the varying mechanism involved have become topics of intense debate,especially the former.This paper summarizes two most commonly used tools for calculating the rate of investment,which are the Lucas formula and C hong-en Bai's formula respectively.With the knowledge extracted from the article regarding cost adjustment in mind as well,it has become evident that neither of these formulas takes the factor of cost adjustment into account.Hence,the q investment theory and the asset pricing model based on production are used so that this particular factor is included into the value maximization formula.Additionally,by taking the condition which states that the marginal value of input is equivalent to the cost of moment into consideration,the return on capital equation that involves cost adjustment is constructed.According to my personal understanding of variables,the data collected from the National Bureau of Statistics and various indexes are constructed into variables.Using the generalized estimation method to approximate the country's rural and urban areas respectively,the cost of adjustment parameters in rural area is found to be 13.209,which that of urban area is 3.131.Additionally,the respective return on capital rate,one which takes taxes and cost adjustments into account,is calculated.Results show that from 1996 to 2014,the average return on capital rate in the rural area is 7.567%,while that in the urban area is 10.053%.Meanwhile,the return on capital rate which under the traditiona l method is also calculated.The results show that the capital return of the adjustment cost method in this paper in the rural area is 62.945% lower than the Bai's method capital return,which is 91.375% lower than the Lucas' s method.In the urban area,the capital return on the adjustment cost method was36.805% per cent lower than the Bai's method capital return,and was 38.694% per cent lower than the Lucas' method capital return.And this paper adjusts the cost method to calculate the rate of return to t he urban area is 2.486 percentage points lower than the rural,and the other two traditional measure results show that the rural rate of return is higher than the city.This is because the cost of rural adjustment is significantly higher than the urban,resulting in lower capital return than the urban.Due to China's vast territory and uneven development in different regions,in order to research about the return on capital rate on a deeper level,this essay uses the Lucas and C hong-en Bai's return on capital formula,while additionally building onto this basis the method of adjustment costs and the Lucas formula for calculating return on capital.This combination of methods is used to calculate the return on capital rate for 28 provinces across country.The results of their panel data are analyzed by trends and features.Finally,there are 28 provinces under Lucas' method show that the rural area return of capital is greater than the urban.Under the Bai's method,the rural return in 8 provinces is greater than the urban.The adjustment cost method makes the rural capital return of only 4 provinces more than the urban.In the provincial urban,except Guangdong,Q inghai,N ingxia,the capital return is less than the Bai's method under the adjustment cost method,and the capital return of Bai method is less than t he Lucas method.In the provincial rural,the capital return rate of Lucas method is higher than the other two methods,and the rural capital return rate of 19 provinces under the adjustment cost method is lower than the results under the Bai's method. |
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