[QHdy5Z3A]

It's spring break!!! Which means I will have time to post!! (Hello lonesoullost3, it appears that you have not posted on the Japan Forum in several weeks.....hahahahaha) So time to start posting ^_^

I don't think China will become a superpower and let me go ahead an argue why. Here's the problem: sure they're growing fast but they will hit a peak because they have inefficient use of manpower. The economic principal is that you want to have an ideal kapital (spelled with a K so as not to confuse with monetary capital) to labor ratio. The problem with China is that they don't have enough kapital. Therefore they have a huge amount of labor that is not being utilized and their productivity is limited by their amount and quality of kapital (the latter being equivalent to technology). By reaching this upper limit China will slowly start decrease in growth rate. Theories in developmental economics suggest that as a country approaches the capacity of the leading country (currently the US) the developing country's growth rate will decline until it actually starts to fall back from the leading country (who is growing at a "normal" rate of about 2-3% per annum).



The vertical axis describes the growth rate of the developing country relative to the growth rate of the leading country (whose growth rate has a relative value of 0). The horizontal axis describes the capacity of the country relative to the leading country (whose relative capacity=100). Also, this graph represents only one country's graph with a an ideal potential capacity and a 1:1 ratio between absorbtion rate and relative capacity (where if my graph wasn't hand drawn in paint, point C would be the intersection of two 45 degree lines coming from points X and Y). A country which has less potential capacity could have B interesect more to the left and thus have point Y be further left, never interescting the leading country's capacity. A country with the same capacity but less absorbtion rate would have a maximum less than C.

Reading the graph:

1. Point A is the steady state where the developing country begins the process of 'catching up'.
2. Point B is the steady state where the country has reached the maximum (and optimum) equlibrium point of growth rate vs. capacity.
3. From point X to point C, the developing country is absorbing information and technology from the leading country (which it must interact with in order to catch up) at a rate less than it's potential capacity to absorb. However, this rate is gradually diminishing (consider it a rule of Diminishing Marginal Growth Rate for each 'unit' of capacity you increase). Point C is where the developing country is absorbing at optimal capacity. From Point C to B is where a developing country is slowly being unable to keep up with the amount of of information being channeled into it from the leading country. I will explain B to Y later.

The following take the above and apply it to the catching up process:

4. From point X to point A the developing country is growing but at a slower rate than the leading country. Thus, the gap between the two countries increases, even though the developing country is growing. If a country does not have enough momentum to reach and sustain point A it will fall back to point X.
5. From point A to C, the developing country is growing (due to bullet #3) and the gap between the two countries decreases. It will continue increasing it's growth rate until point C.
6. From point C to B the developing country is still catching up, however because it's absorbtion rate is not optimal, it begins a period of decline in growth rate (also due to the DMGR referenced above).
7. From B to Y the developing country is attempting to close the final gap between the leading country and itself. However, once this country crosses point B to the right, it will fall back up to point B because it's relative growth rate (although still positive in absolute terms) is now negative. Thus, the gap between the two countries increases (from the excess point) to equilibrium point B again. Therefore, it is possible for a country to exceed point B in the short-run, but in the long run it will always fall back to B. Currently, Japan is at a point B, roughly 90% - but not higher.

Ok - so why does the country's growth rate go relatively negative at this point? At point B the absorbtion rate decreases to a level at which the developing country can only sustain a growth rate equivalent to that of the leading country. Theoretically, if the country somehow jumped to point Y it's absorbtion rate would be 0 because it now has the same capacity as the leading country - hence all information and technology that is transferable has been acquired. However, we must keep in mind that these growth rates and capacities are all relative and that the leading country is growing and increasing in capacity as well! If the leading country was stagnant there is nothing stopping a well developed country like Japan to catch up 100% with the leading country. However because this is not the case highly developed countries will reach their own "point B" and remain that way. The only way for a country to surpass the leading country is for a drastic change in that country's economy to occur over a sustained period.

OK - I think I explained that as best as I can....let me try to sum it up using an analogy (which I actually think comes from a Chinese saying).

A horsefly lands on the rear of a horse, who then starts running. The horsefly then proceeds to walk along the back of the horse towards its nose. Then the fly, wanting to overtake the horse, leaps off its nose to fly ahead. The horsefly was ahead for a brief instant, but the speed of the horse was faster and the fly falls behind and lands on the horse's back again.

The horsefly first landed on the horse's back - Point A.
Starts walking up the back - point A to B.
Jumps of the nose of the horse - temporarily exceeding point B.
Falls back to land on the horse's back - return to B.

Hopefully that will help make things clearer - but be sure to ask if it doesn't!
One more graph (Solow's Growth Model) then I will sum EVERYTHING up in relation to China (and any other country for that matter).



Y-axis is $, X-axis is amount of K(apital)
This one is easier to explain. sf(k) is the national savings of a country as a function of K(apital). (dn)k is the cost of capital where d is the depreciation rate and n is the population growth rate.

The intersection of these two lines provides K* - the steady state amount of kapital a country wants to obtain. At this ideal amount of kapital the country's output is maximized. Because of the diminishing nature of the savings function (referencing to the decreasing slope) countries with lower levels of savings (and thus lower levels of kapital) will accumulate kapital (and thus increase output) faster than countries with a higher level of k.

Once a country reaches it's K* it cannot surpass it. Why? Once the kapital curve exceeds the savings curve kapital requires more money than the economy has (which is in the savings rate). In other words, the savings rate limits the upper bound of kapital accumulation.

SO: China (as an example) is growing extremely rapidly - it is definitely near it's peak at point C in the first graph. However, due to it's problems with kapital efficiency and accumulation and it's pending decrease in growth rate it will not be able to successfully become an economic superpower in the way the US is now. Thus, it will eventually reach its own point B. Everyone knows that the one-child law in China is to slow population growth. Why is this so important? The obvious factor is feeding everybody - China already has a HUGE portion of it's population in the agriculture industry (49% by 2001 estimates). The second reason goes back to kapital accumulation and Solow's Growth Model. As n (the population growth rate) increases, the kapital curve becomes steeper and thus K* decreases. When the steady state kapital decreases output is lower and thus growth is lower. Therefore, from an economic perspective, the one-child law is the absolute best move China has done to boost its economic growth.

OK - that's it...I hope I didn't miss anything - sorry for being so long winded. It's break so I'll be sure to check back here to see if anyone has questions.

References:
http://www.cia.gov/cia/publications/...k/geos/ch.html
Wan, Henry Y. Economic Development in A Globalized Environment
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