Understanding the mystery of continued rapid economic growth

This study examines the fixed output-elasticity assumption of the neoclassical economic growth model and introduces the time-varying elasticity production function model to measure China's time-varying factor income share. Combined with the dual economic theory, the phenomenon of China's high investment rate-high savings rate-high growth rate is explained. Meanwhile, the driving forces of economic growth are decomposed, and a total factor productivity (TFP) decomposition formula is given, which includes China's unique factor structure change. We found that sufficient labor hinders the law of diminishing marginal factors, and the demographic dividend is the main reason for the mystery of China's continued rapid economic growth; the Krugman-Questioning underestimated the contribution of TFP to its economic growth. The Cobb-Douglas production function cannot reflect structural changes in the process of China's economic growth but, the time-varying elasticity production function can reasonably describe it, which provides a new perspective for understanding developing countries' economic growth.

Automated summary

This study examines the fixed output-elasticity assumption of the neoclassical economic growth model and introduces the time-varying elasticity production function model to measure China's time-varying factor income share. The driving forces of economic growth are decomposed, and a total factor productivity (TFP) decomposition formula is given, highlighting China's unique factor structure change. The study suggests that the Cobb-Douglas production function cannot reflect structural changes in China's economic growth process, but the time-varying elasticity production function can provide a new perspective for understanding developing countries' economic growth.