The parallel development-type growth planning of socially institutional infrastructure and the transcendency of optimal growth planning

Abstract

Abstract To what extent do infrastructure, public capital, and social institutions contribute to economic growth? Unlike private business capitals, these socially institutional infrastructures do not directly generate economic growth. However, liberal economic activity is not completely alone; it depends on wide-ranging external conditions. In other words, private business capitals can be more productive through the externalities produced by the socially institutional infrastructures. When planning for the problem of sustainable allocation of finite and scarce resources, how much should we spend on the socially institutional infrastructures, and to what extent will it be effective? This paper attempts to answer this question with a simulation model that uses Ramsey-type optimal growth planning as a benchmark and performs practical and sequentially adaptive decision-making. As a result, it is possible to draw the following conclusions regarding a growth plan that develops private business capital and socially institutional infrastructure in parallel. First, even in an economy with a low level of capital at the initial stage of planning, it is possible to reach a level of social welfare that exceeds the optimal growth planning in the steady state without developing Keynesian public utilities projects or relying on the introduction of foreign capital as a closed economy system model. In addition, the steady-state levels of capital and consumption are below the modified golden rule level, a long-term growth plan that achieves a more economical resource allocation plan for socially finite scarce resources. It is possible to confirm the sustainable growth process with the parallel development-type planning from the time-series transition of this development-type ratio and the savings rate, which shifts consistently from the beginning of the plan to the steady state. The capital turnover rate continues to improve over the optimal plan toward the stationary state. This fact indicates that the parallel development-type planning achieves an efficient economy. JEL codes: C63, D62, E27, O43