CSSN-The Effect of Labor Transfer on the Return to Capital Mechanism Analysis and Empirical Test

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The Effect of Labor Transfer on the Return to Capital Mechanism Analysis and Empirical Test

Author : Source : The Journal of Quantitative & Technical Economics No.1(2014) 2014-01-07

Abstract: Pressing ahead with urbanization has been put forward by the new government as one of the most important policies in the next few years. But some people are worrying about the over investment problem could be aggravated. This paper constructs a dual-economy model in which the return on capital is of inverse-U shape. The reasons are capital concentration, labor mobility and scale economy. We calculate the Chinese provincial return on capital and use the Chinese provincial data to test the model. The results show that if the urbanization policy can make people transfer from the traditional sector to modern sector, then the return to capital may not fall. That is, the investment driven by urbanization has high return to capital as a support. We also find that the scale of manufacture, the financial index, the proportion of SOE and the development of product market are also the factors which affect the return on capital in China.

Key words: Structural Transformation of the Economy, Labor Transfer, Return to Capital

Editor: Yu Hui