A Time-varying Elasticity Production Function Model with Urbanization Endogenous Growth: Evidence of China

This study provides a time-varying elasticity production function model with urbanization endogenous growth. Investigating how urbanization affects economic growth in China over 1978-2005, the study finds out some innovative results. First, the output elasticity of capital is higher than the one of labor during the whole period; unexpectedly, the curve of scale effect shows a highly similar trend with the varying trend of output elasticity of labor, not capital. Second, the growing trend of total factor productivity shows the efficiency of the small cities during the early stage of urbanization process, and it is also proved by the contribution analysis. Finally, it is careful to point out that the development of medium-sized and big cities contributes to the steady and sustainable economic development, that is, plays a role to enhance the contribution of TFP. Consequently, the shift of urbanization road from small cities to medium-sized and big cities is in time and valid.