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A General Equilibrium Analysis of Achieving the Goal of Stable Growth by China’s Market Expectations in the Context of the COVID-19 Pandemic

Author

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  • Jin Fan

    (College of Management and Economic, Nanjing Forestry University, Nanjing 210037, China)

  • Hongshu Wang

    (College of Management and Economic, Nanjing Forestry University, Nanjing 210037, China)

  • Xiaolan Zhang

    (Division of Economic Forecasting, State Information Center of China, Beijing 100045, China)

Abstract

The COVID-19 pandemic triggered a weakening of expectations of market players and local governments. It is necessary to explore some effective paths to stabilize China’s market expectations. This paper draws on computable general equilibrium (CGE) model elasticity indicators and marginal utility indicators to simulate the impact of the COVID-19 pandemic on market agents and the impact of shocks brought about by the COVID-19 pandemic on various industry sectors. Our results first show that the Keynesian closure is still valid, with the impact values of the COVID-19 pandemic on GDP, urban consumption, rural consumption, investment, imports, and exports being 2.35%, 7.96%, 9.79%, 4.10%, −3.13%, and 6.15%, respectively, with the COVID-19 pandemic shock having a particularly strong impact on rural consumption. Second, the impact of the COVID-19 pandemic on different industries is comprehensive and non-equilibrium. In consumption, urban and rural residents have the largest changes in consumption demand in the tertiary and primary industries, and the overall change in consumption of rural residents is larger than that of urban residents. In investment, the tertiary industry investment changes most significantly, while the primary industry has a gentle change. The impact of weaker import and export expectations on industry imports and exports is concentrated in the secondary and primary industries. Third, the weakening expectation induces a decline in the multiplier effect, making it difficult for economic growth to return to pre-pandemic levels, which needs to be accompanied by fiscal policies such as reducing taxes, lowering fees, and raising fiscal spending to achieve growth targets. In addition, while fiscal policy significantly boosts import and export trade, it has a significantly greater impact on exports than imports.

Suggested Citation

  • Jin Fan & Hongshu Wang & Xiaolan Zhang, 2022. "A General Equilibrium Analysis of Achieving the Goal of Stable Growth by China’s Market Expectations in the Context of the COVID-19 Pandemic," Sustainability, MDPI, vol. 14(22), pages 1-22, November.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:22:p:15072-:d:972467
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    References listed on IDEAS

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