Question

What issues will China face if it continues to grow? Does it show any pattern similar to what Solow suggested? please include a reference

Answer 1

If China continjes to grow tremendously at an accelerated pace following negative ramifications are forecasted:

• Higher debt to GDP ratio
• Yuan depreciation to make exports competitive
• Higher inflation due to high consumption griwth
• Lower interest rate regime for long which can cause debt traps.
• Income levels rise per person exponentially.

The above format doesn't follow the Solow growth module assumptions as the policies of government and central bank cannot permanently perturb the nation, however income leves can rise.

However the base case assumptions here was that China continued to grow at high CAGR growth rates and has positively being growing year on year.

References : Solow Model of Growth, by Sanket Suman, Economics discussion.

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