The Calculation Of Urban And Rural Adjustment Cost In China And Its Impact On Capital Return Rate

Research shows that investment frictions are prevalent in the investment process,but the existing research does not take the friction factors into account in the calculation of the capital return rate.The capital return rate based on the model without considering investment friction is generally higher than the actual value,especially for the rural areas.Therefore,this paper starts from the theory of asset pricing which based on production,takes adjustment costs as the expression of investment frictions to construct the equation of capital return rate.Then,we estimate the adjustment costs parameters by Generalized Method of Moment and calculate the national and inter-provincial urban and rural adjustment cost and capital return rate.Last,we decompose the equation of capital return rate to study the impact of adjustment cost on capital return rate.We get the national urban and rural adjustment cost parameters which are 3.1307 and 13.2090.So we could calculate the national and inter-provincial urban and rural adjustment costs size,found that adjustment cost in C hina's economic production accounts for a considerable proportion,particularly in the rural areas.From 1995 to 2014,the average proportions of national urban and rural investment marginal adjustment cost accounted for the marginal cost of capital are 0.4035 and 0.7576,the average proportions of national urban and rural adjustment cost accounted for the output are 0.1689 and 0.1857.Through computing the capital return rate,we find that,except for few provinces,the capital return rate in urban is much higher than those in rural.From 1996 to 2014,the national urban and rural capital return rate is 10.05% and 7.57%.Thus,for rational investors,it is more sensible to invest money in the urban areas.Decomposition of capital return rate equations find that the existence of adjustment cost reduces the capital return rate.What's more,the extent of rural reduction is greater than it of urban.From 1996 to 2014,the adjustment cost results the national urban and rural capital rate of return reduced by 5.86% and 12.85%.