China's Economic Growth Appraisal through the Solow Model Research Paper

Chinas sparing Growth Appraisal through the Solow determine - Research Paper ExampleThe short term implications take policy measures such as tax cuts as well as subsidies on investment that could fall the steady state levels of output but not the increase in the longer run. Furthermore the produce is affected in the shorter run sole(prenominal) because the deliverance converges to newer steady state levels of output. In addition the grade of ontogeny of the economy as the economy converges to a steady state atomic number 18 determined by the esteem of capital accumulation alone. The rate of capital accumulation is the determined using the thriftinesss rate as well the overall depreciation of capital.In contrast the long term implications of the Solow simulate require that the long term rate of growth can be determined exogenously only. A common method acting of predicting implies that an economy will tend to converge towards a steady state rate of growth depending onl y on the rate of labor force growth and the rate of technological progress. The Solow model accommodates for higher saving rates producing higher growth rates much like older models but it appreciates technological transformation more in the longer run compared to accumulation of capital. The key assumption of the Solow growth model is that the complicated capital is subject to the law of diminishing returns within a closed economy. Mathematically the Solow model is represented through the interaction between five macroeconomic equations for GDP, change in capital, the macro production function, nest egg and changes in the workforce. These functions can be represented mathematically as below (Haines). Function Mathematical way Macro-production Function Savings Function Changes in Capital Changes in Workforce Where is the total production of the economy is the multifactor productivity or technology is the capital is the labor is the savings portion of total production whic h represents savings is the depreciation is the net growth rate is the time 2. Chinas Growth as per the Solow Model The Solow model has been used extensively in divers(a) forms in order to decipher national growth in the longer run utilizing exogenous perspectives. The basic key assumption remains the same as above which is the diminishing returns of the capital within a closed economy model. Moreover the textbook Solow model relies on exogenous rates for capital accumulation, technological progress and population growth. The overall economic growth in the longer run is estimated exogenously through relying on the rate of technological progress as stipulated in the discussion above. However the basic textbook Solow model cannot reliably predict economic growth so it is often augmented with structural terms. This text will not deal with the derivation of the Solow models mathematical implications as it is beyond the scope of this text but instead it will report on the primary equ ations utilized for the Solow model. The derivation for the mathematical expressions used in the Solow model can be retrieved from various economics studies relating the Solow model to economic growth (Ding and Knight) (Temple and Wobmann). Based on these researches the primary equations in use are The equations listed above accommodate for structural changes, efficiency of the economy, changes in labor patterns, technological changes as well as residuals required for convergence. The model listed above was used along with panel data from a variety of sources such as PWT (Penn World Table), WDI (World Bank Development Indicators), and FAO