A Localization of Solow Growth Model with Labor Growth Pattern in China
- 1 Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China
- 2 Department of Automation, Tsinghua University, Beijing, China
Abstract
This paper investigates the Solow Growth Model on a country-specific level by applying the demographic growth pat-tern in China to it. To localize the neoclassic model, China population growth estimation function based on the Verhulst Population Model is introduced to transform the population growth rate from a constant to a function, altering the orig-inal model assumption. By inserting the population growth function into Solow's work, an economy growth phase dia-gram for China is obtained. MATLAB programming is used to depict the diagram in a three-dimensional space and to show that the set of optimal capital-labor ratio values lies in the intersecting line of two planes rather than in the inter-secting point of two curves in the original model setting. An neoclassical aggregate feasible growth path for China's economy can be depicted based on a chosen optimal value. The dynamic equilibrium in this case should not be unique; instead, capital-labor ratio together with population growth situation at a certain time point should be jointly taken into consideration to solve the optimization problem in the country's long term economy development.
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