A Simulation of the Necessary Total Factor Productivity Growth and Its Feasible Dual Circulation Source Pathways to Achieve China’s 2035—Economic Goals: A Dynamic Computational General Equilibrium Study

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The topic of the paper is relatively novel, and it is particularly important to improve total factor productivity and achieve sustainable economic growth goals in a complex dual circulation environment.

This study builds a global dynamic recursive computational general equilibrium (CGE ) model on basis of GTAP-RD to simulate of the necessary macro TFP growth and its feasible dual circulation source pathways to achieve china economic vision goal.

The content of the paper can succinctly describe the theoretical background of the past and present, as well as the empirical research on the topic. The cited references are highly relevant to the research, and the research design, questions, hypotheses, and methods are clearly explained. The empirical research results can be presented clearly, the variable selection is reasonable, the research conclusion is fully supported by the results presented in the article.

The shortcomings are that theoretical mechanism analysis should be more comprehensive and specific.

Author Response

Comments 1: 

The topic of the paper is relatively novel, and it is particularly important to improve total factor productivity and achieve sustainable economic growth goals in a complex dual circulation environment.

This study builds a global dynamic recursive computational general equilibrium (CGE ) model on basis of GTAP-RD to simulate of the necessary macro TFP growth and its feasible dual circulation source pathways to achieve china economic vision goal.

The content of the paper can succinctly describe the theoretical background of the past and present, as well as the empirical research on the topic. The cited references are highly relevant to the research, and the research design, questions, hypotheses, and methods are clearly explained. The empirical research results can be presented clearly, the variable selection is reasonable, the research conclusion is fully supported by the results presented in the article.

The shortcomings are that theoretical mechanism analysis should be more comprehensive and specific.

Response 1: 

Thank you for pointing this out. I agree with your comment. Consequently, I have expanded the second part of my research to include an analysis of the theoretical mechanisms. Would you please kindly find this in the revised manuscript on Pages 4–8, I also paste this part as follows.

Thank you for your helpful comments again!

 

2.Theoretical Mechanismand Literature Review

2.1. Theoretical mechanism analysis

For the theoretical framework, this paper adopts a perspective of balanced, coordinated, endogenous and sustainable growth, which is composed of the following three dimensions:

2.1.1. Theoretical foundation in new growth theory

This paper is rooted in new growth theory, which identifies endogenous technology as a key element of economic growth. Even today, macroeconomics continues to evolve through modifications to this framework. New growth theory updated from neoclassical growth theory, beginning with the work of Solow and Swan (1956). The Solow-Swan model, based on the Cobb-Douglas model and exogenous technological progress, attempts to obtain a long-term steady-state solution and address the possibility of long-term stable and sustainable economic growth by endogenizing the capital-output ratio. This approach seeks to resolve the so-called "knife-edge" problem, which suggests that long-term steady-state growth is nearly impossible due to the capital-output ratio being exogenously given, as highlighted by the Harrod-Domar model. From Solow, growth theory began to emphasize technology, and total factor productivity (TFP) became synonymous with it. Since then, TFP has accounted for 50-70% of the differences in economic growth between countries (Hsieh and Klenow, 2010) and has been proven to be the primary source of long-term improvements in living standards (Hall and Jones, 1999). However, in the Solow model, the economy must rely on exogenous technological progress.

To address the shortcomings of the Solow model, Cass (1965) and Koopmans (1965) introduced the optimization method previously used by Ramsey (1928) into the neoclassical growth model, thereby refining the research methodology of the neoclassical exogenous growth model while still focusing on resolving the endogenization of the savings rate.

In the following two decades, theoretical research on economic growth entered a relatively long period of stagnation, with the major issue of endogenizing technological progress remaining unresolved. After this dormancy, the theory of economic growth was revitalized in the late 1980s and early 1990s with the emergence of new growth theory. This resurgence was marked by breakthroughs from economists such as Romer (1986, 1990) and Lucas (1988), who introduced concepts such as "learning by doing," research and development (R&D), and human capital into economic growth models, thereby creating various channels for endogenous technological progress. Subsequently, Howitt (1992) and Grossman and Helpman (1991) incorporated elements of Schumpeter's economic growth theory to establish an endogenous technological innovation model. Barro and Sala-i-Martin (1995) identified external factors such as investment rates, human capital accumulation, and government expenditure that drive economic growth with diminishing marginal returns. To sustain this fruitful growth trend, countries must transition to an endogenous economic growth model primarily driven by total factor productivity. Efforts to endogenize population migration and birth rates (Barro et al., 1995) have also shown progress.

2.1.2. Middle-income trap as a theoretical basis

The theoretical framework of this paper also incorporates the concept of the "middle-income trap." This term was first introduced in the World Bank thematic report "An East Asian Renaissance: Ideas for Economic Growth" (Indermit Gill, Homi Kharas, et al., 2007), which highlights the unique trend of slower growth risk among middle-income countries. The report emphasizes that during the transition from middle-income to high-income status, it is essential for middle-income countries to adopt development approaches and policies that differ fundamentally from those used in the past. Furthermore, according to Indermit Gill and Homi Kharas (2015), while various definitions of the trap exist, the most widely accepted proposition is that a “trap” occurs when growth falls below potential. Eichengreen et al. (2017) indicates more clear that countries successfully transitioning from middle-income to high-income status achieve higher total factor productivity (TFP) growth rates, even when their investment rates are comparable to those of a control group of countries that remain in the middle-income bracket for extended periods. These findings align with the research of Jones (2016) and Kim and Park (2017), which find that middle-income growth is all about TFP.

In facing this 'trap' or transitional challenge, there are both losers and winners: Argentina and Brazil in Latin America briefly crossed the threshold from middle-income to high-income status but ultimately failed to progress and have regressed into poverty; in contrast, Japan, South Korea, Singapore, and China's regions of Taiwan, Hong Kong, and Macau, along with Ireland in Europe and Chile in Latin America, have successfully transitioned from middle-income to high-income status. Thus, the question arises: does this trap exist on a broader level? This will determine whether China may also fall into this trap.

Spence (2011) indicates that few countries have managed to achieve per capita income levels above $10,000 (2005 PPPs) since 1975. Athukorala and Woo (2011) provided evidence supporting the existence of the middle-income trap by constructing a Catch-Up Index (CUI) as a percentage of the U.S. level. Felipe et al. (2012) identified two middle-income ranges: $2,000 to $7,500 and $7,500 to $11,500 (1990 PPPs). If a country remains in the first range for more than 28 years or in the second range for over 14 years, it is considered stuck in the trap. Eichengreen et al. (2013), however, defined two ranges as $10,000 to $11,000 and $15,000 to $16,000 (2005 PPPs), finding that economies originally experiencing rapid growth typically face significant slowdowns within these two ranges. A similar conclusion was reached by Aiyar et al. (2013) through their examination of 123 episodes of growth slowdowns since 1960.

From the above discussion, it is clear that the "trap" is a widely recognized and verified phenomenon. With a per capita income of $12,681 in current dollars for 2023, China is at a critical juncture in its challenging transformation as it shifts toward an economic growth model primarily driven by total factor productivity. Even without mentioning Japan, South Korea, Singapore, and China's regions of Taiwan, Hong Kong, and Macau—countries and regions that are geographically close to China and share cultural similarities—these examples offer valuable insights for China's transformation. All of them are trade-oriented, rely on foreign investment, and, the most importantly, their governments have played a crucial role in their successful past transformations. Furthermore, the experiences of unsuccessful countries serve as important reminders for China: sustained economic development is not only important but also essential.

2.1.3. Restructuring large scale CGE model

Computational General Equilibrium (CGE) modeling is both a theory and a method. It represents an effort to harness the principles of general equilibrium theory as a practical analytical tool for addressing real-world economic issues.

This paper adopts a comprehensive CGE model as its benchmark, primarily due to the high suitability of CGE for examining economic growth issues, along with its well-established history. Johansen's work in 1960 is widely recognized for pioneering the extension of Leontief's Input-Output (IO) approach—originally developed in the mid-1930s (Leontief, 1936)—into a model that encapsulates an entire economy, integrating both macroeconomic balancing constraints and the microeconomic behaviors of its constituent parts, as reflected through a system of equations. Johansen's innovative computational approach lies in its differentiation of the nonlinear model and its representation of equilibrium in terms of elasticities, cost shares, and percentage change variables, significantly enhancing the analysis of economic mechanisms in any given simulation.

With a foundation rooted in real Input-Output data, CGE models are inherently sustainable and self-consistent, ensuring that growth is deemed sustainable as long as the calculated results are non-negative, representing balanced growth under various conditions.

In contemporary times, CGE analysis has evolved into more extensive models. For global issues, the CGE model known as the Global Trade Analysis Project (GTAP)—first introduced in 1992 and heavily influenced by the contributions of Peter Dixon (Dixon et al., 1982)—has become the de facto standard and the starting point for nearly all comprehensive analyses of international trade matters (Angel Aguiar et al., 2019). The model used in this study is based on the dynamic recursive Global Trade Analysis Project-Recursive Dynamic (GTAP-RD) (Aguiar et al., 2019), which, in turn, builds on the seventh generation of the static Global Trade Analysis Project (GTAP v.7) (Corong et al., 2017) and is written in the TABLO language.

The widespread adoption of large-scale computational general equilibrium (CGE) frameworks across various policy areas has been largely driven by substantial advancements in computational power, database capabilities (extensive Input-Output databases for construction), and modeling techniques. This makes CGE modeling a highly challenging endeavor, with most innovations emerging from modifications or restructuring of the base model, the introduction of scenarios and shocks, and the analysis of simulation results or predictions for specific issues and continuous refinement through ongoing applications. In this sense, the resulting developments in economics resemble a natural experiment more than ever before.

For example, a tax recycling strategy is simulated on basis of GTAP-RD against a baseline up to 2030 under the shared socioeconomic pathway 2 (SSP2) to assesses potential market-mediated impacts from increased subsidies to pasture-based livestock production in the EU (Salwa Haddad et. al., 2024); Study applying GTAP-RD model has been done to estimate international container cargo flows in Cambodia in 2025 under five scenariosto reflect economic and logistics policies related to the removal of preferential duties and improvement at cross border operations and a port (Naoki Kosuge et. al., 2024); Also, with usage of GTAP-RD, study has been done to compare two main scenarios with the ingredients of a deeper regional integration compared to the IORA's present open regionalism status (Abdallah Akintola et. al., 2022 ); Arnim Kuhn and Wolfgang Britz (2021) develop long-term scenarios combining trends in population numbers, incomes, and crop productivity for Sub-Saharan Africa (SSA) up to 2050 by using a recursive-dynamic version of the GTAP general equilibrium model ; And multiple future scenarios are developed with GTAP-RD for considering uncertainties inherent in African socio-economies related to the success or failure of economic and industrial policies and economic corridor development policies, the predictions reveal that if policies are successfully implemented, Africa, as awhole, will experience a significant increase in trade, estimated at US$ 1,905 billion and US$ 1,599 billion forexports and imports, respectively (Ryuichi Shibasaki et. al., 2021), etc.

 

The theoretical foundations of the three levels mentioned above are progressively interconnected. First, new growth theory identifies technology as the driving force behind endogenous growth. Second, the well-documented "middle-income trap" suggests that developing countries like China must inevitably transition from past extensive growth to a technology-dependent model; otherwise, sustainable growth will be unattainable. Finally, the large-scale CGE model, grounded in input-output data, serves as both a theoretical framework and a methodological tool. Its equilibrium nature inherently ensures the potential for sustainability, while the task of addressing problems through application and prediction under scenarios and shocks relies on restructuring the model to facilitate detailed, issue-specific simulations and shocks.

While these mechanisms are well-established, one point needs clarification: since CGE projections are highly case-specific, we found no literature addressing the same theme to review. This indicates that our study is entirely original in terms of its model structure, simulations, scenarios, and shocks. Consequently, the following literature review section will explain the innovative modifications we made to the base model and the rationale behind the introduction of specific variables for shocks in this paper.

2.2. Literature review

We will mainly review some fundamental studies that may seem old and were conducted long ago to explain how to develop technology in late-developing countries, which have already become part of widely accepted theoretical analyses because structural changes to the base model made in this study require a foundation of solid and systematic theoretical accumulation. We will also review some of the latest literature published in this era, as baseline, aggregation, and coefficient issues sometimes need to follow the latest research trends.

.......（original manuscript）

Reviewer 2 Report

Comments and Suggestions for Authors

1. Originality and significance of contribution

 

The article contributes to the ongoing debate about China’s economic growth prospects and the feasibility of achieving the 2035 economic vision goal. The study's primary contribution lies in its development of a global dynamic recursive computational general equilibrium (CGE) model, which integrates dual circulation—domestic and international—as a core mechanism for assessing technological progress and economic growth. This approach is particularly innovative in its attempt to quantify the impacts of various global and domestic factors on China's total factor productivity (TFP). While the study addresses a timely and relevant issue, its originality is somewhat diminished by the lack of a clear, novel theoretical framework; instead, it extends existing models with some modifications. Moreover, its practical implications for policymakers and economists could be more explicitly articulated.

 

2. Appropriateness of abstract as a description of the paper

 

The abstract provides a concise summary of the paper's objectives, methodology, and key findings. It effectively communicates the main goal of assessing whether China can achieve its 2035 economic vision by simulating various scenarios using a dynamic CGE model. The abstract mentions the dual circulation strategy and highlights the importance of technological spillovers from international trade and FDI. However, the abstract does not adequately capture the potential limitations associated with the research. Moreover, the abstract does not clearly highlight the potential challenges in applying the model's results to real-world policy-making.

 

3. Adequacy of the literature review

 

The literature review in this paper is thorough but somewhat imbalanced. The review covers a broad spectrum of relevant literature, from classical theories of economic growth and TFP to recent empirical studies on China's economic performance and dual circulation strategy. However, the review is heavily focused on the theoretical foundations, with less emphasis on empirical studies that could provide a stronger contextual background for the study's methodological choices. Additionally, while the literature review mentions key concepts like technology spillovers and threshold effects, it does not sufficiently engage with potential criticisms of these concepts. Also, it lacks a critical evaluation of the gaps in the existing literature that this study aims to fill.

 

4. Organization and readability

 

The organization of the paper is generally logical, following the standard structure of introduction, literature review, methodology, results, discussion, and conclusion. The use of headings and subheadings aids readability, and the flow between sections is smooth. However, the readability of the paper could be improved by using a different notation for subheadings (for example, at heading A, the author can use a1, a2, a3, instead of a, b, and c). Also, the author should analyse the numbering of sections (I can not find section IV) and of the tables (the numbering jumps from 3 to 6, and then to 4, and then to 7).  

 

5. Soundness of methodology, analysis, and interpretation

 

The methodology employed in the paper is robust, with a well-justified use of the CGE model to simulate various scenarios affecting China's TFP growth. The authors make a significant effort to incorporate a wide range of variables, including external shocks and internal economic adjustments. However, there are some weaknesses in the methodology. The paper would benefit from a more detailed justification for the selection of certain parameters and shock variables, as well as a discussion on the potential biases inherent in the model. Moreover, while the paper simulates several scenarios, it does not provide sufficient sensitivity analysis to determine how changes in key assumptions might affect the outcomes.

 

6. Evidence supports conclusions.

 

The conclusions drawn in the paper are generally well-supported by the evidence presented. The scenarios analyzed provide a comprehensive picture of the potential pathways for China's economic growth, and the findings are consistent with the data and model outputs. However, the conclusion section could be enhanced by discussing the broader implications of the findings for policymakers.

Comments on the Quality of English Language

Minor editing of English language required.

Author Response

Comments: 

1. Originality and significance of contribution

The article contributes to the ongoing debate about China’s economic growth prospects and the feasibility of achieving the 2035 economic vision goal. The study's primary contribution lies in its development of a global dynamic recursive computational general equilibrium (CGE) model, which integrates dual circulation—domestic and international—as a core mechanism for assessing technological progress and economic growth. This approach is particularly innovative in its attempt to quantify the impacts of various global and domestic factors on China's total factor productivity (TFP). While the study addresses a timely and relevant issue, its originality is somewhat diminished by the lack of a clear, novel theoretical framework; instead, it extends existing models with some modifications. Moreover, its practical implications for policymakers and economists could be more explicitly articulated.

2. Appropriateness of abstract as a description of the paper

The abstract provides a concise summary of the paper's objectives, methodology, and key findings. It effectively communicates the main goal of assessing whether China can achieve its 2035 economic vision by simulating various scenarios using a dynamic CGE model. The abstract mentions the dual circulation strategy and highlights the importance of technological spillovers from international trade and FDI. However, the abstract does not adequately capture the potential limitations associated with the research. Moreover, the abstract does not clearly highlight the potential challenges in applying the model's results to real-world policy-making.

3. Adequacy of the literature review

The literature review in this paper is thorough but somewhat imbalanced. The review covers a broad spectrum of relevant literature, from classical theories of economic growth and TFP to recent empirical studies on China's economic performance and dual circulation strategy. However, the review is heavily focused on the theoretical foundations, with less emphasis on empirical studies that could provide a stronger contextual background for the study's methodological choices. Additionally, while the literature review mentions key concepts like technology spillovers and threshold effects, it does not sufficiently engage with potential criticisms of these concepts. Also, it lacks a critical evaluation of the gaps in the existing literature that this study aims to fill.

4. Organization and readability

The organization of the paper is generally logical, following the standard structure of introduction, literature review, methodology, results, discussion, and conclusion. The use of headings and subheadings aids readability, and the flow between sections is smooth. However, the readability of the paper could be improved by using a different notation for subheadings (for example, at heading A, the author can use a1, a2, a3, instead of a, b, and c). Also, the author should analyse the numbering of sections (I can not find section IV) and of the tables (the numbering jumps from 3 to 6, and then to 4, and then to 7).  

5. Soundness of methodology, analysis, and interpretation

The methodology employed in the paper is robust, with a well-justified use of the CGE model to simulate various scenarios affecting China's TFP growth. The authors make a significant effort to incorporate a wide range of variables, including external shocks and internal economic adjustments. However, there are some weaknesses in the methodology. The paper would benefit from a more detailed justification for the selection of certain parameters and shock variables, as well as a discussion on the potential biases inherent in the model. Moreover, while the paper simulates several scenarios, it does not provide sufficient sensitivity analysis to determine how changes in key assumptions might affect the outcomes.

6. Evidence supports conclusions.

The conclusions drawn in the paper are generally well-supported by the evidence presented. The scenarios analyzed provide a comprehensive picture of the potential pathways for China's economic growth, and the findings are consistent with the data and model outputs. However, the conclusion section could be enhanced by discussing the broader implications of the findings for policymakers.

 

Response:  Thanks a lot for your such detailed improvement suggestions! I would like to answer all the above comments in an individual dedicated document, please see the attachment.

Again, I thank you for your insightful and helpful critiques and precious praises! 

Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

Line 336, Table 4. The data obtained and their description do not give a clear understanding of how the calculation was made or from which source it was taken. Therefore, as a recommendation, the author should describe Table 4 in more detail.

Comments on the Quality of English Language

Minor editing of English language required.

Author Response

Comment: Line 336, Table 4. The data obtained and their description do not give a clear understanding of how the calculation was made or from which source it was taken. Therefore, as a recommendation, the author should describe Table 4 in more detail.

Response: Thank you very much for your helpful improvement suggestion. I totally agree with that. Consequently, I made the following revisions to improve: 

Now Table 4's numbering has been changed to Table 5. And, around Table 5 I elaborate the calculation steps in details and attach Appendix A, B and C to this paper to help give a clear understanding. Since this response box does not support pasting equations, I have uploaded a Word file with a detailed response to this comment. Please see the attachment. 

Thank you again for your helpful improvement suggestion!

Author Response File: Author Response.pdf

Reviewer 4 Report

Comments and Suggestions for Authors

The document entitled “Simulation of the Necessary Macro TFP Growth and its Feasible Dual Circulation Source Pathways to Achieve China Economic Vision Goal: A Dynamic CGE Study” analyzes the potential for China to achieve its ambitious per capita GDP target by 2035. It uses a global dynamic recursive computational general equilibrium (CGE) model, incorporating trade, technological spillovers, and dual circulation strategies to simulate various scenarios. The analysis emphasizes the role of both internal and external economic circulations in achieving sustainable growth.

I would like to highlight two main strengths of the document. Firstly, it presents a comprehensive approach by integrating recent GTAP data and modeling innovations, which provide a robust framework for evaluating China's economic future. Secondly, the document’s scenarios are well-constructed to cover a broad spectrum of possible outcomes, ensuring that the analysis is thorough and considers various global economic factors.

The methodology implemented is adequate because it uses a dynamic recursive model that allows for the simulation of long-term impacts of policy and economic changes. This model is well-suited to account for the complexities of global value chains and the technological spillovers that are crucial for understanding China's potential growth trajectory.

The results obtained demonstrate that while China can achieve its 2035 vision if it maintains an open trade policy and leverages both internal and external circulations, the interplay between these factors is complex. The document shows that external circulation, particularly through international trade and FDI, plays a more significant role in technological spillovers and economic growth compared to internal circulation alone.

No errors are observed in the formulation of models or in the interpretation of the results presented in the tables.

The figures included in the document facilitate the understanding of the content presented in the document.

The bibliography is adequate, with no detected self-citations.

The text is well-written, with no detected grammatical or spelling errors.

The format of the document does not comply with the guidelines recommended by the journal, and the author is encouraged to make the necessary adjustments.

For all the above reasons, there is no obstacle to this document continuing with the publication process in Sustainability, once the modifications suggested in this report have been made.

Author Response

Comments：

The document entitled “Simulation of the Necessary Macro TFP Growth and its Feasible Dual Circulation Source Pathways to Achieve China Economic Vision Goal: A Dynamic CGE Study” analyzes the potential for China to achieve its ambitious per capita GDP target by 2035. It uses a global dynamic recursive computational general equilibrium (CGE) model, incorporating trade, technological spillovers, and dual circulation strategies to simulate various scenarios. The analysis emphasizes the role of both internal and external economic circulations in achieving sustainable growth.

I would like to highlight two main strengths of the document. Firstly, it presents a comprehensive approach by integrating recent GTAP data and modeling innovations, which provide a robust framework for evaluating China's economic future. Secondly, the document’s scenarios are well-constructed to cover a broad spectrum of possible outcomes, ensuring that the analysis is thorough and considers various global economic factors.

The methodology implemented is adequate because it uses a dynamic recursive model that allows for the simulation of long-term impacts of policy and economic changes. This model is well-suited to account for the complexities of global value chains and the technological spillovers that are crucial for understanding China's potential growth trajectory.

The results obtained demonstrate that while China can achieve its 2035 vision if it maintains an open trade policy and leverages both internal and external circulations, the interplay between these factors is complex. The document shows that external circulation, particularly through international trade and FDI, plays a more significant role in technological spillovers and economic growth compared to internal circulation alone.

No errors are observed in the formulation of models or in the interpretation of the results presented in the tables.

The figures included in the document facilitate the understanding of the content presented in the document.

The bibliography is adequate, with no detected self-citations.

The text is well-written, with no detected grammatical or spelling errors.

The format of the document does not comply with the guidelines recommended by the journal, and the author is encouraged to make the necessary adjustments.

For all the above reasons, there is no obstacle to this document continuing with the publication process in Sustainability, once the modifications suggested in this report have been made.

Response : 

I have adjusted the paper’s format to comply with sustainability-template, changes include right numbering of sections, right numbering of tables and formats of equations, etc. Thank you very much for your valuable suggestion and your insightful comments!

Round 2

Reviewer 2 Report

Comments and Suggestions for Authors

On the first version of the paper, some concerns were raised.

These concerns were successfully addressed by the author in the revised manuscript.

The manuscript can be accepted in the present form.

Author Response

Comment：

On the first version of the paper, some concerns were raised. These concerns were successfully addressed by the author in the revised manuscript. The manuscript can be accepted in the present form.

Response:

Thank you once again for your helpful and insightful comments. Without them, I would not have been able to revise the paper to this version. Thanks!