According to the golden rule of capital accumulation by Phelps (1961), dynamic inefficiency can be caused by both overinvestment in a centralized planned economy and underinvestment in a decentralized market economy. However, applying it to China's economy, the rule fails to observe the universal phenomenon that the (net) investment returns are below the sum of the population growth rate and the rate of technological progress. In addition, the steady state modeling adopted by the golden rule theory in comparing and selecting the national savings rate is inconsistent with the tendency that the capital per capita of developing economies grows faster, leading to the eventual convergence of all economies. Excerpted from Theoretical System of China's Macroeconomic Analysis by Chaoyu Zheng All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.
