Growth Models Research Paper

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GDP GNI

GDP and GNI Discussion: China and Canada

The country selected for our analysis is China, a nation that has experienced an apparent increase in the rate of its growth in concurrence with the shifts in the global economy. As free trade has opened China up to a greater number of trade partners and to particular trade partners in much larger proportion such as the United States, a great many indicators stand to suggest that China has in fact enjoyed a change in its rate of growth. On the surface, this appears to correspond with the principles of the Harrod-Domar model, which indicates that "the more an economy is able to save -- and invest -- the great will be the GDP growth." (Ghosh, lec3-4.1, p. 11)

As China's role in the global economy has increased, its apparent savings and capital for investment has produced a non-constant growth rate that may be characterized as warranted growth. According to the World Bank, the saving/investment rate in China, labeled as gross capital formation, % of GDP, has risen steadily between the years of 2000 and 2004. Respectively in these years, China's savings/investment rates are listed as 35, 36, 38, 41 and 43. (World Bank)

Using the Harrod-Domar Equation of g = s/v -- ? where v=3 and the rate of capital depreciation is identified as 0, the equation is applies to offer an 'implied GDP growth rate for the years 2001-2005 for China.

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Respectively, these are 11.7, 12, 12.7, 13.7 and 14.3. We compare these rates of implied growth, which demonstrate a steady climb in the space of time examined, with the 'actual growth rates' recorded by the World Bank at the same duration. According to the World Bank, China's GDP growth (annual %) from the years 2001 to 2005 would be marked at 8.3, 9.1, 10.0, 10.1 and 11.3. (World Bank)

The findings of this exercise seem to suggest a compatibility between the trends in Chinese GDP growth over the time examined and the rate of savings/investment as this measures an implied GDP. The two indicators both exhibit a steady rise in GDP which underlines the consistency of the Harrod-Domar model. Indeed, we note a rise of 3 percentage points in the rate of growth across the five years measures where actual GDP is concerned. The implied rate of growth across this same duration produces a rise of 2.6%. This proximity of these figures suggests that China is an effective example of the Harrod-Domar model, denoting a developing context in which balanced growth is not 'naturally occurring' but is instead warranted by the rate of savings and investment. As this rate has demonstrated a steady increase between the years of 2001 and 2005,….....

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