China has one of the highest investment rates in the world, over 40 percent of its GDP in recent years. A natural question to ask is: Does China invest too much? On the one hand, China is still a low-income economy, with a capital-labor ratio that is low compared with those of advanced economies, and thus the potential returns to investment could be high. On the other hand, as Robert Lucas pointed out, other constraints, such as low levels of human capital, backward technology, and low quality of institutions, may limit the realization of these potential high returns in China as in other developing countries. The fact that capital often flows from poor to rich countries reminds us that the return to capital is not always higher in poor countries.
展开▼
