Theme：A Dynamic Aggregate Supply-Demand Model of the Economy during Industrialization and Urbanization: A Theoretical Framework for Analyzing China’s Macroeconomic Fluctuations

Guest Speaker：Defu Li (Tongji University)

Time：April 15th, 2026(Wednesday)，10:30-11:45 am

Venue：Room 318, Business School Building

Organizer：The Department of Economics

Guest Bio:

  Defu Li is currently an Associate Professor at the School of Economics and Management, Tongji University. He received his Ph.D. in Economics from Nankai University in 2006 and was a visiting scholar at Brown University. His research areas include development economics and macroeconomics. He established a dual-sector economic growth model with endogenous agricultural technological progress incorporating trade and labor mobility (Chen and Li, 2004), and an aggregate supply-demand model for a labor-surplus economy (Li and Tang, 2013). He proposed the Phillips curve and Okun’s law for a dual economy (Li, 2005). He proved that Proposition 15.12 in Chapter 15 of Professor Acemoglu’s renowned textbook Introduction to Modern Economic Growth, concerning the Uzawa steady-state theorem, is invalid, and this finding was accepted by Professor Acemoglu. His research on the direction of technological change has been cited in a literature review by Grossman and Oberfield (2022) published in the Annual Review of Economics (Li and Bental, 2019). He currently leads the National Natural Science Foundation project “Research on the Transmission Mechanism of Economic Fluctuations and Stabilization Policies during Industrialization and Urbanization” (Grant No. 72273096). He has also completed several national and provincial projects, including those from the National Natural Science Foundation, the National Social Science Foundation, and the Shanghai Philosophy and Social Science Planning Project. His major research findings have been published in academic journals such as Economic Research Journal, China Economic Quarterly, China Industrial Economics, and World Economy.

Synopsis：

  The mainstream aggregate supply-demand models in macroeconomics are designed for developed economies that have completed industrialization and urbanization, whereas China’s economy is still in the process of industrialization and urbanization. By introducing labor transfer functions from labor market reforms and the modern agricultural sector, and population migration functions from traditional rural areas to modern cities, and by decomposing government expenditure into government consumption spending, infrastructure investment affecting firm production, and infrastructure investment affecting urban residents’ living standards, we develop a dynamic aggregate supply-demand model capable of analyzing the economy both during and after the process of industrialization and urbanization. Using this model, we analyze the transmission mechanisms and differences of exogenous shocks during and after the process, and point out that countercyclical stabilization policies recommended by existing theories may not only fail to achieve short‑term stabilization goals but may also harm long‑term economic development during the process. We then propose stabilization policies that can balance short-term stability and long-term development. Finally, addressing China’s current macroeconomic problems, we argue that insufficient investment in livelihood-related infrastructure and restrictions imposed by the household registration (hukou) system, which lead to lagging urbanization, are the deep-seated causes of insufficient domestic demand. Therefore, increasing investment in livelihood infrastructure and accompanying it with hukou system reform to accelerate urbanization would not only raise both short-term and long-term aggregate demand to overcome the current deflation, but also correct the imbalance between urbanization and industrialization for long-term economic development. However, increasing productive infrastructure investment and implementing accommodative monetary policy, although they may boost aggregate demand in the short run, could exacerbate supply gluts in the long run.