Date of Submission

Spring 2024

Academic Program

Mathematics; Economics

Project Advisor 1

Dimitri B. Papadimitriou

Project Advisor 2

Stefan Mendez-Diez

Abstract/Artist's Statement

Driven by the recent shift in China’s economic policy to address decaying demand, both domestic and foreign, this paper offers insights into rethinking the structure of the supply side of China's economy, by constructing a two-sector optimal growth model combining Solow’s neoclassical growth theory with optimal control theory. Under the assumption that supply-demand equilibrium prevails in the economy, the model answers the question of how China can optimally allocate physical capital and labor between the production of consumption goods and investment goods to maximize consumer utility from 2007 to 2022. When plotting the optimal allocation ratios against the actual allocation ratios, the visualization indicates that China's resource allocation structure has deviated from its optimal path since 2007. Therefore, this paper argues that, if the supply is sufficiently met by demand, the government should implement supply-side policies to influence its resource allocation structure to move towards its optimal path following the solutions suggested by the model. Since the supply and demand conditions are currently off balance in China, various demand-side policies facilitating the achievement of market equilibrium will also be discussed at the end.

Open Access Agreement

Open Access

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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