Abstract:
The sectoral composition of investment is different from that of consumption in China. We incorporate the investment mechanism into a two-sector general equilibrium model. We calibrate model to the output share and the employment share of non-agricultural sector in China. The counter-factual experiments reveal that the effects of the sectoral composition of investment on structural transformation and labor productivity growth are significant, but the effects of investment rate are moderate. Moreover, the changes in the sectoral composition of investment can be largely attributed to the changes in the relative efficiency of sectoral output in producing investment goods.
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