Research on the Dynamic Relationship among National Gross Income, Government Consumption, and Fixed Asset Investment Based on the VECM Model

Abstract

To explore the intrinsic dynamic interconnections among China’s economy, consumption, and investment, this study focuses on the relationships between national income, government consumption, and fixed assets investment. Utilizing the VECM model, it conducts an in-depth analysis of their dynamic linkages. Data on gross national income (GNI), government consumption (ZC), and total fixed assets investment (TINF) from 1990 to 2023 were selected. ADF tests identified the non-stationarity of the original series, which was transformed into a stationary state through first-order differencing. Johansen cointegration tests precisely pinpointed a unique cointegration relationship at the 5% significance level. After determining the optimal lag order according to the AIC criterion, the VECM model was successfully constructed, and a cointegration equation was derived. The results indicate that in the long run, national income is positively correlated with government consumption but negatively correlated with total fixed assets investment. When considering strategies to boost GNI, while government consumption holds potential for positive traction, expenditure decisions must carefully weigh multiple derived effects. Given the negative coefficient warning for fixed assets investment, decision-making should be approached with utmost caution, prioritizing the optimization of investment structure and efficiency. Additionally, close coordination with key variables such as inflation and employment is essential. Centered on the cointegration relationship as the foundational cornerstone, meticulous formulation of sound economic policies is crucial to effectively promote steady economic growth and maintain dynamic equilibrium.