nep-cna New Economics Papers
on China
Issue of 2008‒11‒11
eleven papers chosen by
Zheng Fang
Ohio State University

  1. ECONOMIC GROWTH AND GROWTH LINKAGES IN CHINA 1994-2003 By Ari, Kokko; Ljungwall, Christer; Gustavsson Tingvall, Patrik
  2. How Dependent is the Chinese Economy on Exports and in What Sense has its Growth been Export-led? By Dong He; Wenlang Zhang
  3. Assessing the Role of Technology Adoption in China's Growth Performance. By Nadja Wirz
  4. Industrial Agglomeration and Wage Inequality in China By Li, Yao
  5. Why is Chinese Regional Output Diverging? By Westerlund, Joakim; Edgerton, David
  6. China's Participation in Global Environmental Negotiations By Huifang Tian; John Whalley
  7. How China's farmers adapt to climate change By Wang, Jinxia; Mendelsohn, Robert; Dinar, Ariel; Huang, Jikun
  8. Temporary and Persistent Poverty among Ethnic Minorities and the Majority in Rural China By Gustafsson, Björn; Sai, Ding
  9. Dependence Structures in Chinese and U.S. Financial Markets -- A Time-varying Conditional Copula Approach By Hu, Jian
  10. A Fresh Scrutiny on Openness and Per Capita Income Spillovers in Chinese Cities: A Spatial Econometric Perspective By Sélin Ozyurt
  11. The US as the "Demander of Last Resort" and its Implications on China's Current Account By Joshua Aizenman; Yothin Jinjarak

  1. By: Ari, Kokko (European Institute of Japanese Studies); Ljungwall, Christer (China Economic Research Center); Gustavsson Tingvall, Patrik (China Economic Research Center)
    Abstract: This paper investigates to what degree neighboring Chinese provinces were linked to each other in terms of economic growth, income levels, and foreign direct investment during the period 1994-2003. When looking at mainland China, we find that both the level of income and the rate of income growth in a province depend on developments in neighboring provinces. However, we find no evidence of any positive interdependence between growth in rich coastal provinces and their immediate inland neighbors. This suggests that there has been little harmonization in economic growth rates between these regions, and that the immediate hinterland of the coastal growth centers might be bypassed as China’s manufacturing sector is moving west.
    Keywords: Domestic integration; growth interdependence; China’s Economy
    JEL: F14 F15 O53
    Date: 2008–10–01
  2. By: Dong He (Research Department, Hong Kong Monetary Authority); Wenlang Zhang (Research Department, Hong Kong Monetary Authority)
    Abstract: This paper studies the interaction between foreign trade and domestic demand and supply in China¡¦s economic transformation. It compares China¡¦s export dependency with other economies using input-output analysis. The paper also conducts econometric analysis of provincial level data to examine causality between the growth of foreign trade and different components of domestic demand, and causality between the growth of foreign trade and total factor productivity. The main message is that China¡¦s export dependency is significantly lower than commonly thought. Moreover, the contribution of export to economic growth in China came mainly from its impact on total factor productivity growth from a supply perspective rather than its multiplier effect from a demand perspective. This relationship was found to be stronger in the more developed coastal areas than in the less developed inland areas.
    Keywords: Export-led growth; Export dependency; Input-output analysis; Malmquist index
    JEL: F13 O11 O43
    Date: 2008–10
  3. By: Nadja Wirz (University of St. Gallen, Switzerland)
    Abstract: China has experienced a period of tremendous economic growth in recent years. In an attempt to explain this development, several existing growth-accounting studies reveal that impressively high rates of productivity growth have been at the heart of China's performance. This study investigates to what extent these productivity increases can be explained by technology-adoption theory. In less developed countries, the key element behind technological progress is technology adoption, the process of copying technological knowledge invented throughout the world. To uncover a measure of China's technological advances, the paper constructs a hybrid of some prominent technology-adoption models and calibrates it to reasonable parameter values. The calibrated version of the model is then combined with Chinese economic data. For the period 1978-2005, the analysis finds that the Chinese performance can be explained to a surprisingly large extent by the suggested technology-adoption framework. It can account for roughly 80% of China's productivity gains.
    Keywords: technological progress; technology adoption; TFP; China
    JEL: O11 O30 O40 O52
    Date: 2008–10
  4. By: Li, Yao
    Abstract: This paper estimates nonlinear structural wage equations derived from NEG model with data on 327 cities in China. The estimation results show that the variation of wage level across cities in China is associated with proximity to large markets. The estimated elasticity of substitution of China is smaller than those of the other countries studied in previous research. It indicates that with the same increase of sub-regional market size, China may suffer more serious regional inequality problems. My estimation shows that although increased agglomeration can increase each city’s wage level, it may also increase the wage gap between large and small cities.
    Keywords: New Economic Geography; Wage Inequality; Elasticity of Substitution
    JEL: O24 F12 R12
    Date: 2008–05
  5. By: Westerlund, Joakim (Department of Economics, Lund University); Edgerton, David (Department of Economics, Lund University)
    Abstract: In a recent paper Pedroni and Yao (2006) present strong evidence suggesting that Chinese regional output is diverging, a result that fies in the face of the current opinion of Chinese policymakers. This paper provides an in-depth analysis of the reasoning behind this finding. Our main result is that the divergence does exist, even when new data and more advanced methods of analysis are used. We also find that it has both an idiosyncratic and a common component. Hence, the increased output inequalities observed at the regional level is due to both region-specific disparities and to disparities between clubs of regions.
    Keywords: China; Output convergence; Panel unit root tests; Common factor
    JEL: C32 C33 O53 R11
    Date: 2008–10–29
  6. By: Huifang Tian; John Whalley
    Abstract: In the paper we discuss China's participation in both the 2009 Copenhagen negotiations on a post-Kyoto global climate change regime currently under way and out beyond Copenhagen in further negotiations likely to follow. China is now both the largest and most rapidly growing carbon emitter, and has much higher emission intensity relative to GDP than OECD countries. In the Copenhagen negotiation, there will be strong pressure on China to take on emissions reduction commitments and China's concern will be to do so in ways that allow continuation of a high growth rate and fast development. Central to this will be maintaining access to OECD markets for manufactured exports in face of potential environmental protectionism. Thus the broad approach seems likely to be to take on environmental commitments in part in return for stronger guarantees of access to export markets abroad. This involves directly linked trade and environmental commitments although how linkage can be made explicit is a major issue. More narrowly, the issues that seem likely to dominate the climate change negotiating agenda from China's viewpoint are the interpretation of the common but differentiated responsibilities (CBDR) principle adopted in Kyoto, the choice of negotiating instruments and form of emission commitments, and the size (and form) of accompanying financial funds for adaptation and innovation. We suggest that a possible interpretation of CBDR reflecting China's desire to leave room to grow when undertaking emission reduction commitments might be for China to take on emission intensity commitments while OECD countries take on emission level commitments. Larger funds and flexibility in their use will also raise China's willingness to make commitments.
    JEL: Q54 Q56
    Date: 2008–10
  7. By: Wang, Jinxia; Mendelsohn, Robert; Dinar, Ariel; Huang, Jikun
    Abstract: This paper uses a cross sectional method to analyze irrigation choice and crop choice across 8,405 farmers in 28 provinces in China. The findings show that Chinese farmers are more likely to irrigate when facing lower temperatures and less precipitation. Farmers in warmer places are more likely to choose oil crops, maize, and especially cotton and wheat, and are less likely to choose vegetables, potatoes, sugar, and especially rice and soybeans. In wetter locations, farmers are more likely to choose soybeans, oil crops, sugar, vegetables, cotton, and especially rice, and they are less likely to choose potatoes, wheat, and especially maize. The analysis of how Chinese farmers have adapted to current climate, provides insight into how they will likely adapt when climate changes. Future climate scenarios will cause farmers in China to want to reduce irrigation and shift toward oil crops, wheat, and especially cotton. In turn, farmers will shift away from potatoes, rice, vegetables, and soybeans. However, adaptation will likely vary greatly from region to region. Policy makers should anticipate that adaptation is important, that the magnitude of changes depends on the climate scenario, andthat the desired changes depend on the location of each farm.
    Keywords: Crops&Crop Management Systems,Climate Change,Rural Poverty Reduction,Common Property Resource Development,Agriculture&Farming Systems
    Date: 2008–10–01
  8. By: Gustafsson, Björn (Göteborg University); Sai, Ding (Chinese Academy of Social Sciences)
    Abstract: Poverty among ethnic minorities and the majority in rural China for the years 2000, 2001 and 2002 is investigated taking a dynamic view and using a large sample covering 22 provinces. Based on the National Bureau of Statistics' low income line, almost one-third of the ethnic minorities experienced poverty during the three years studied while the corresponding proportion among the ethnic majority was only about half as high. Still, by far most of the poor in rural China belong to the ethnic majority. The relatively high poverty rates for ethnic minorities in rural China are found to be due to higher rates of entry than for the majority, while differences in exit rates across ethnicities are few. To a large extent, ethnic poverty differences can be attributed to differences in location together with temporary and persistent poverty in rural China having a very clear spatial character. Poverty is concentrated to the western region and villages with low average income. Determinants of persistent and temporary poverty in rural China differ due to location as well as household characteristics.
    Keywords: China, poverty, ethnic minorities
    JEL: I32 J15
    Date: 2008–10
  9. By: Hu, Jian
    Abstract: In this paper, we use a Time-Varying Conditional Copula approach (TVCC) to model Chinese and U.S. stock markets‚ dependence structures with other financial markets. The AR-GARCH-t model is used to examine the marginals, while Normal and Generalized Joe-Clayton copula models are employed to analyze the joint distributions. In this pairwise analysis, both constant and time-varying conditional dependence parameters are estimated by a two-step maximum likelihood method. A comparative analysis of dependence structures in Chinese versus U.S. stock markets is also provided. There are three main findings: First, the time-varying-dependence model does not always perform better than constant-dependence model. This result has not previously been reported in the literature. Second, although previous research extensively reports that the lower tail dependence between stock markets tends to be higher than the upper tail dependence, we find a counterexample where the upper tail dependence is much higher than the lower tail dependence in some short periods. Last, Chinese financial market is relatively separate from other international financial markets in contrast to the U.S. market. The tail dependence with other financial markets is much lower in China than in the U.S.
    Keywords: AR-GARCH-t model; Time-varying conditional copula; Dependence structure; Stock market
    JEL: C51 G15 F36 P52
    Date: 2008–10–31
  10. By: Sélin Ozyurt
    Abstract: This paper investigates openness and per capita income spillovers over 367 Chinese cities in the year 2004. Per capita income is modelled as dependent on investment, physical and social infrastructure, human capital, governmental policies and openness to the world. Our empirical analysis improves substantially the previous research in several respects: Firstly, by extending the data set to prefecture-level, it tackles the aggregation bias. Secondly, the introduction of recently developed explanatory spatial data analysis (ESDA) and spatial regression techniques allows to address misspecification issues due to spatial dependence. Thirdly, the endogeneity problem in the regression is taken into consideration through the use of generalised method of moments (GMM) estimator. Our major findings are in Chinese cities, physical and social infrastructure development, human capital and investment could be recognised as major driving sources of per capita income (i), whereas, the government expenditure ratio exerts a negative impact on per capita GDP level (ii). Our empirical findings also yield evidence on the existence of FDI and foreign trade spillovers in China (iii). These findings are robust to a number of alternative spatial weighting matrix specifications.
    Date: 2008–11
  11. By: Joshua Aizenman; Yothin Jinjarak
    Abstract: This paper evaluates the degree to which current account patterns are explained by the variables suggested by the literature, and reflects on possible future patterns. We start with panel regressions explaining the current account of 69 countries during 1981-2006. We identify an asymmetric effect of the US as the "demander of last resort:" a 1% increase in the lagged US current account deficit is associated with 0.5% increase of current account surpluses of countries running surpluses, but with insignificant changes of current account deficits of countries running deficits. Overall, the panel regressions account for not more than 2/3 of the variation. We apply the regression results to assess China's current account over the next six years, projecting a large drop in its account/GDP surpluses.
    JEL: F15 F32
    Date: 2008–10

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