nep-cna New Economics Papers
on China
Issue of 2008‒08‒06
two papers chosen by
Zheng Fang
Ohio State University

  1. Regional Price Differences in Urban China 1986-2001: Estimation and Implication By Gong, Cathy Honge; Meng, Xin
  2. Asian Industrialization: A strategic analysis with a memorandum on the Australian response By Huw McKay

  1. By: Gong, Cathy Honge (Australian National University); Meng, Xin (Australian National University)
    Abstract: Despite the intensive efforts made by economists to examine regional income inequality in China, limited attention has been paid to disentangle the contribution of regional price differentials. This paper examines regional price differential in urban China over the period 1986 to 2001. Spatial Price Index (SPI) is normally calculated using the Basket Cost Method, which defines a national basket and measures price variation of this common basket across different regions. The weakness of this method is that it arbitrarily assumes consumers’ preferences and has a strong reliance on good regional level price data, which are often not available. This paper adopts the Engel’s curve approach to estimate a Spatial Price Index for different provinces. The SPI obtained from the Engel’s curve approach indicates larger regional price variations than those obtained from the Basket Cost method. Further, regional price variations in urban China increased significantly during the late 1980s to early 1990s, stabilized at a relatively high level during the mid to end 1990s. Adjusting for the regional price variations our finding suggests that regional income inequality increased the most between the late 1980s and early 1990s, and stabilized in the mid 1990s, which contradicts previous findings using unadjusted income.
    Keywords: spatial price index, Engel’s curve, income inequality, China
    JEL: C43 E31 P36 D12
    Date: 2008–07
  2. By: Huw McKay
    Abstract: This essay considers the economic performance of East Asia’s two largest economies in the second half of the twentieth century and debates prospects for the first half of the twenty-first. The discussion takes place in the context of dynamic strategy theory. First in Japan, and then later in China, ‘developmental’ states adopted strikingly successful industrialisation strategies with a common thread of outward orientation. Outward orientation is distinguished from export dependence. The former is an autocatalyzing sub-strategy that can sustain an economy all the way to full membership of the strategic core. Outright export dependent strategies, in contrast, are finite and imitative rather than auto-catalyzing, leaving their practitioners highly exposed to adverse external shocks. Japan’s experience of strategic rise, stagnation and eventual exhaustion is articulated at length to illustrate this important distinction. China’s own outward-oriented strategy, which is currently stimulating rapid economic growth and differs in many important respects from Japan’s, is then analysed in an attempt to examine its future viability. China’s prospects for adapting an alternative strategy prior to exhaustion are then considered. The conclusion is that it is reasonable to expect China’s strategic leadership to attempt to transition towards a sub-strategy that continues to sponsor industrialization through exploitation of the mass internal market in the broad context of outward orientation. Furthermore, the contemporary sub-strategy is clearly far from exhausting itself. However, the risks are consequential. On balance, prospects for a successful transition are sound but not overwhelming. An Asian-facing resource rich economy such as Australia should actively hedge the risks of unsuccessful transition. In the face of this uncertainty, Australian strategists are thankfully not facing an independent binary choice. To hedge against the possibility of the more pessimistic projections coming to fruition in China, thereby unhinging a resource dependent substrategy, Australia must make an independent effort to make an assertive move towards the upper echelons of productivity performance. This will involve a wholesale reassessment of the scale of national resources that should be directed to the innovation infrastructure.
    Keywords: Asian industrialisation, Chinese and Japanese strategic pursuit, dynamicstrategy theory, Snooksian strategy function, Australian economic policy
    JEL: N1 N15
    Date: 2008–06

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