Dual-circulation proportion and industrial development: A dynamic simulation based on the CGE model

To address the profound changes unseen in a century, China has proposed a new development paradigm featuring “dual circulation”, with the domestic economy as the mainstay and the domestic and international economies reinforcing each other. This paper constructs a dynamic and static CGE (computable general equilibrium) model system based on China’s multi-regional input-output table. The dynamic CGE model is used to simulate the impacts of population growth, tax adjustments, and effective investment on the construction of the dual circulation pattern and related economic variables. Based on the simulation results, an appropriate dual circulation proportion coefficient is selected, and the comprehensive impact of its synergistic effects with technological level and tax changes on industrial development is analyzed through the static CGE model. The research results show that population, tax rate, and effective investment have differentiated impacts on the dual circulation proportion coefficient. Specifically, the natural growth rate of population and tax rate hikes have relatively limited effects in promoting dual circulation, while increased effective investment significantly drives the expansion of the dual circulation proportion coefficient. Based on this, to ensure stable economic operation and promote industrial development, the dual circulation proportion coefficient should be maintained within a range of 1–2 times, while ensuring that technological progress is coordinated with the development direction of dual circulation. Dynamic simulations indicate that moderately increasing the tax rate (5%–15%) can accelerate industrial transformation and upgrading; when the dual circulation proportion coefficient is 1.2 times, the conditions for industrial development are most favorable. It is worth noting that in constructing the dual circulation pattern, one should avoid blindly pursuing excessive expansion of the proportion of domestic circulation to prevent negative impacts on the economic system. Through rigorous theoretical modeling and numerical simulations, this paper provides quantitative evidence and policy implications for the transformation of traditional development models, the scientific construction of the new dual circulation development paradigm, and industrial upgrading.