nep-cna New Economics Papers
on China
Issue of 2009‒09‒19
four papers chosen by
Zheng Fang
Ohio State University

  1. Is Happiness Infectious? By John Knight; Ramani Gunatilaka
  2. Poverty and Vulnerability in Rural China: Effects of Taxation By Katsushi S. Imai; Xiaobing Wang; Woojin Kang
  3. Reform and Competitive Selection in China: An Analysis of Firm Exits By Qing Gong Yang; Paul Temple
  4. Regional determinants of FDI in China: A new approach with recent data By Hein Roelfsema; Martijn Boermans; Yi Zhang

  1. By: John Knight; Ramani Gunatilaka
    Abstract: The paper uses an appropriate survey from rural China to answer the question: Is happiness infectious, i.e. does the happiness of an individual depend positively on the happiness of their reference group? The evidence is consistent with this hypothesis, but the challenge is to solve the ‘reflection problem’, i.e. is the apparent effect of neighbours’ happiness on own happiness a causal one or merely a reflection? A ‘quasi-panel’ approach is adopted, treating villages as groups and individuals as multiple observations within each group, and using an error components 2SLS estimator. The results suggest that a major part of the relationship is indeed causal: Adam Smith’s insight was correct! The normative and policy implications are briefly considered.
    Keywords: Happiness, Social interaction, Relative deprivation, China
    JEL: D01 D60 D64
    Date: 2009
  2. By: Katsushi S. Imai; Xiaobing Wang; Woojin Kang
    Date: 2009
  3. By: Qing Gong Yang (New Zealand Commerce Commission); Paul Temple (University of Surrey)
    Abstract: This paper considers aspects of the competitive selection process in China - firm entry, survival, and exit - in an important sector of manufacturing, looking in particular for changes resulting from the latest stage of reforms. Using industry survey data from a province in North-East China, we find substantial differences in the process between ownership types. By conducting a simple decomposition of the aggregate productivity growth and exploring the determinants of firm’s exit using a hazard rate model, we observe a substantial rate of churning of enterprises in the sector, and find that the competitive selection processes operate, for small and collectively owned enterprises (COEs), in a manner consistent with a private market economy. In contrast, such processes appear not to be functioning for state owned enterprises (SOEs). We conclude that competitive selection in China is not providing a sufficiently strong substitute for corporate governance based on ownership.
    Keywords: Competition; Exit; Productivity, Hazard Models
    JEL: C5 D2 L6 P5
    Date: 2009–09
  4. By: Hein Roelfsema; Martijn Boermans; Yi Zhang
    Abstract: We empirically investigate the factors that drive the uneven regional distribution of foreign direct investment (FDI) inflows to China.s 31 provinces from 1995 to 2006. The aim of this paper is to explain the investment patterns in (partly) foreign funded firms across these provinces. We use factor analysis and derive four factors that may drive FDI: institutions, labor costs, market potential, and geography. The factor analysis then structures our dataset to concentrate on these four clusters consisting of 42 province specific and time-varying items. Factor analysis not only helps us to identify the latent dimensions which are not apparent from direct study, but also facilitates econometrics with reduced number of variables. We apply fixed effects panel estimation and GMM to account for endogeneity. In line with theoretical predictions we find that foreign investors choose and invest more in provinces with better institutions, lower labor costs, and larger market size. Nonlinear results denote that the positive effects of infrastructure and market potential on FDI are complementary to each other, which is in line with the economic geography literature. In particular the effect of market size on FDI is larger in provinces with better institutions. Sub-sample study confirms the existences of a large disparity between East and West. In the poorer large western provinces FDI is strongly driven by the geographical factor in contrast to the east of China where institutions play a significant role to build the .factory of the world.. Robustness tests indicate that two sub-dimensions of institutions, namely infrastructure and governance, are important to determine the location choice of FDI in China.
    Keywords: FDI, China, factors analysis, regional and spatial distribution of FDI, location choice
    JEL: F21 F23 O18 O53 R11
    Date: 2009–09

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