Prague Economic Papers 2020, 29(5):522-544 | DOI: 10.18267/j.pep.746

Dynamic Efficiency in World Economy

Kevin Luoa, Tomoko Kinugasaa, Kai Kajitania
a Kobe University, Kobe, Japan

Based on the AMSZ (1989) criterion, we exploit comprehensive datasets to estimate the dynamic efficiency of world economy. The results reveal that the representative econo-mies conform to a "U-shaped pattern" in their evolution of capital accumulation. That is, a period of decreasing efficiency (over-accumulation) followed by increasing efficiency (de-accumulation). Contrary to previous evidence, the bias-corrected estimates show that major economies have been inconsistently dynamically efficient. As a prime example, China today is unquestionably in a state of severe dynamic inefficiency, and the inefficient status is likely to continue in near future. We also document the limitations of the AMSZ criterion and point out promising research directions in the efficiency literature.

Keywords: Dynamic efficiency, over-accumulation, cash flow criterion, interest rates, Pareto optimality
JEL classification: E22, E43, O57

Received: April 18, 2019; Revised: November 7, 2019; Accepted: December 10, 2019; Prepublished online: May 11, 2020; Published: October 16, 2020  Show citation

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Luo, K., Kinugasa, T., & Kajitani, K. (2020). Dynamic Efficiency in World Economy. Prague Economic Papers, 29(5), 522-544. doi: 10.18267/j.pep.746
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