nep-cna New Economics Papers
on China
Issue of 2006‒01‒01
four papers chosen by
Fang Zheng
Fudan University

  1. Neither a borrower nor a lender : does China ' s zero net foreign asset position make economic sense? By Kraay, Aart; Dollar, David
  2. Is China a Leviathan? By Zhu, Z.; Krug, B.
  3. Health systems in East Asia : what can developing countries learn from Japan and the Asian tigers ? By Wagstaff, Adam
  4. Measuring the impact of the investment climate on total factor productivity : the cases of China and Brazil By Lee, Kihoon; Anderson, William P.; Subramanian, Uma

  1. By: Kraay, Aart; Dollar, David
    Abstract: China in the past few years has emerged as a net foreign creditor on the international scene with net foreign assets slightly greater than zero percent of wealth. This is surprising given that China is a relatively poor country with a capital-labor ratio about one-fifth the world average and one-tenth the U.S. level. The main questions that the authors address are whether it makes economic sense for China to be a net creditor and how they see China ' s net foreign asset position evolving over the next 20 years. They calibrate a theoretical model of international capital flows featuring diminishing returns, production risk, and sovereign risk. The calibrations for China yield a predicted net foreign asset position of -17 percent of China ' s wealth. The authors also estimate nonstructural cross-country regressions of determinants of net foreign assets in which China is always a significant outlier with 5 to 7 percentage points more of net foreign assets relative to wealth than is predicted by its characteristics. China ' s extensive capital controls can explain why its current net foreign asset position is far away from what is predicted by open-economy models and cross-country empirics. It seems reasonable to assume that China ' s international financial integration will increase over time. The authors calibrate and predict different scenarios out to 2025. These scenarios are necessarily speculative, but it is interesting that they typically imply negative net foreign asset positions between 3 and 9 percent of wealth. What may be counter-intuitive for many policymakers is that successful institutional ref orm and productivity growth are likely to lead to more negative net foreign asset positions than occurs with stagnation. Starting from China ' s zero net foreign assets position, it would take current account deficits in the range of 2-5 percent of GDP to reach any of these net foreign assets positions. These are not unreasonable deficits, but they require a large adjustment from the present 6 percent of GDP current account surplus.
    Keywords: Economic Theory & Research,Investment and Investment Climate,Capital Flows,Economic Growth,Banking Law
    Date: 2005–12–01
  2. By: Zhu, Z.; Krug, B. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: (Last revised version December 2005) To address the problem why China, as a communist country, moves in the opposite direction when the public sector has undergoing a continuous growth in most Western economies since the World War II, we offer a new approach that the de facto fiscal decentralization curtails government size in transition China in addition to conventional explanations. Meanwhile, by analyzing panel data and various variables used by previous empirical studies, this paper tests the Leviathan hypothesis for vertical decentralization, horizontal fragmentation and intergovernmental collusion at central-provincial and provincial-local level. Our empirical results not only explain Chinese shrinking government size, but also lend support to Leviathan hypothesis, especially, under the condition of the absence of traditional democratic electoral constraint.
    Keywords: Leviathan;Fiscal Decentralization;China;Transition Economy;
    Date: 2005–12–19
  3. By: Wagstaff, Adam
    Abstract: The health systems of Japan and the Asian Tigers--Hong Kong (China), the Republic of Korea, Singapore, and Taiwan (China)--and the recent reforms to them provide many potentially valuable lessons to East Asia ' s developing countries. All five systems have managed to keep a check on health spending despite their different approaches to financing and delivery. These differences are reflected in the progressivity of health finance, but the precise degree of progressivity of individual sources and the extent to which households are vulnerable to catastrophic health payments depend too on the design features of the system-the height of any ceilings on social insurance contributions, the fraction of health spending covered by the benefit package, the extent to which the poor face reduced copayments, whether there are caps on copayments, and so on. On the delivery side, too, Japan and the Tigers offer some interesting lessons. Singapore ' s experience with corporatizing public hospitals- rapid cost and price inflation, a race for the best technology, and so on-shows the difficulties of corporatization. Korea ' s experience with a narrow benefit package shows the danger of providers shifting demand from insured services with regulated prices to uninsured services with unregulated prices. Japan, in its approach to rate-setting for insured services, has managed to combine careful cost control with fine-tuning of profit margins on different types of care. Experiences with diagnosis-related groups in Korea and Taiwan (China) point to cost-savings but also to possible knock-on effects on service volume and total health spending. Korea and Taiwan (China) both offer important lessons for the separation of prescribing and dispensing, including the risks of compensation costs outweighing the cost savings caused by more " rational " prescribing, and cost-savings never being realized because of other concessions to providers, such as allowing them to have onsite pharmacists.
    Keywords: Health Monitoring & Evaluation,Health Economics & Finance,Health Systems Development & Reform,Health Law,Technology Industry
    Date: 2005–12–01
  4. By: Lee, Kihoon; Anderson, William P.; Subramanian, Uma
    Abstract: This study measures the impact of investment climate factors on total factor productivity (TFP) of firms in Brazil and China. The analysis is conducted in two steps: first an econometric production function is estimated to produce a measure of TFP at the firm level. In the second step, variation in TFP across firms is statistically related to a indicators of the investment climate as well as firm characteristics. The results yield a number of insights about the factors underlying productivity. In both countries, and in a variety of industry groups, indicators of poor investment climate, especially delays in customs clearance and interruptions in utility services, have significant negative effects on TFP. Reducing customs clearance time by one day in China could increase TFP by 2-6 percent. Indicators such as email usage have positive effects on TFP. In the case of China, state-owned firms and firms located in t he interior are shown to be much less productive than privately owned firms and firms located in the east. In Brazil, the results present an interesting contrast between the apparel industry and the electronics industry. In the apparel industry, older firms in competitive markets are more productive, while in the case of electronics, newer firms with higher market shares are more productive.
    Keywords: Economic Theory & Research,Technology Industry,Water and Industry,ICT Policy and Strategies,Economic Growth
    Date: 2005–12–01

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