nep-cna New Economics Papers
on China
Issue of 2006‒08‒26
two papers chosen by
Zheng Fang
Fudan University

  1. Modernizing China’s Growth Paradigm By Eswar S. Prasad; Raghuram G. Rajan
  2. The Direct Substitution Between Government and Private Consumption in East Asia By Yum K. Kwan

  1. By: Eswar S. Prasad (International Monetary Fund and IZA Bonn); Raghuram G. Rajan (International Monetary Fund)
    Abstract: China has achieved tremendous economic progress in the last three decades, but there is much work to be done to make the economy resilient to large shocks, ensure the sustainability of its growth, and translate this growth into corresponding improvements in the economic welfare of its citizens. We discuss the complex challenges that Chinese policymakers face in striking the right balance in terms of speed and coordination of reforms. We argue that China’s current stage of development, along with its rising market orientation and increasing integration with the world economy, may make the incremental and piecemeal approaches to reforms increasingly untenable and, in some cases, could even generate risks of their own. The present favorable domestic and external circumstances provide an excellent window of opportunity for bolder reforms and for tackling some deep-rooted problems without causing much economic disruption.
    Keywords: policy reforms, market-oriented economy, trade and financial integration, policy complementarities
    JEL: P2 F3
    Date: 2006–08
  2. By: Yum K. Kwan
    Abstract: We investigate empirically the extent to which government consumption substitutes for private consumption in nine East Asia countries. Panel cointegrating regression uncovers a significantly positive elasticity of substitution between government and private consumption, implying on average government and private consumption are substitutes in East Asia. Country-by-country analysis, however, reveals diversity in the substitutability estimates. The four North East countries – China, Hong Kong, Japan, and Korea – tend to share similar and moderate values of the substitution elasticity. For the five ASEAN countries studied in this paper, the relationship between private and government consumption vary substantially, both in the sign and magnitude of the elasticity of substitution. Private and government consumption in Malaysia and Thailand are strong substitutes, but they are found to be complements in Indonesia and Singapore. In between is the Philippines which has a near zero elasticity of substitution.
    JEL: E6 H5
    Date: 2006–08

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