The Advanced Model
Based on the basic model, the advanced model is proposed in this chapter. It is advanced in that it further explores the heterogeneities within urban and rural household groups: urban households are divided into lenders and borrowers. Under such an assump
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The Advanced Model
7.1
Theoretical Framework
Similar to the basic model, the advanced model assumes that rural households do not possess any capital, all of which are exclusively owned by the household lenders. Within the rural household group, it is further divided into two sub-groups: rural migrant1 workers, who work in the non-housing sector and rural migrant construction workers, who work only in the real estate industry. This is consistent with the real social structure in most emerging market economies.2 Additionally, the advanced model considers production as a more sophisticated process that produces both housing and non-housing products. Thus, this model captures the effects of different technology conditions and structures in these two sectors. Finally, we introduce a rich set of shocks into the advanced model, making it possible to analyse the detailed dynamic information of the model to a variety of shocks.
1 The word ‘migrant’ reflects the fact that these agents are from rural parts of the economy but live and work in the urban areas. According to China’s National Bureau of Statistics, the number of migrant workers rose to 280 million in 2019. 2 Compared to goods production, the production of real estate assets, or put it in another way, building construction, is of a lower level of technology and skill, especially concerning the property development in emerging market economies. Therefore, the majority of the working force in the building construction industry are workers from rural areas.
© The Author(s) 2020 D. L. Jia, Dynamic Macroeconomic Models in Emerging Market Economies, https://doi.org/10.1007/978-981-15-4588-7_7
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7.1.1
Household Sector
In the basic model, we try to introduce heterogeneities of households by categorizing households into urban and rural ones, according to their economic and social characteristics. As we have mentioned previously, the definition of urban and rural is not limited by their geographic meaning. They can be feasibly expanded to two social classes of households, with one more developed and the other less developed, or one with ownership of capital and the other with no capital ownership. In general, household heterogeneities in emerging market economies can be better depicted by considering more details of the economic properties and characteristics of these households. In the countries we focus on, several different household classes exist, each with their unique economic features in terms of industries they work in, access to the financial market and capital ownership. Moreover, each of these social classes includes a large number of households. After considering the study of social layers and classification in emerging market economies in Chapter 2, urban and rural households are further classified into 4 groups in the economy of this advanced model. More specifically, they are household borrowers, household lenders, rural workers and rural migrant construction workers. Their economic behavioural patterns and budget constraints are discu
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