nep-cna New Economics Papers
on China
Issue of 2015‒01‒19
eleven papers chosen by
Zheng Fang
Ohio State University

  1. Export management and incomplete VAT rebates to exporters: the case of China By Sandra PONCET; Julien GOURDON; Laura HERING; Stéphanie MONJON
  2. Evolving public expenditure in Chinese agriculture: Definition, pattern, composition, and mechanism: By Yu, Bingxin; Chen, Kevin Z.; Zhang, Yumei; Zhang, Haisen
  3. An experimental study of the effects of intergroup contact on attitudes in urban China By Jun Gu; Ingrid Nielsen; Jason Shachat; Russell Smyth; Yujia Peng
  4. Oil Price Shocks and China’s Economy: Reactions of the Monetary Policy to Oil Price Shocks By Won Joong Kim; Shawkat Hammoudeh; Jun Seog Hyun; Rangan Gupta
  5. Sex and Happiness By Zhiming Cheng; Russell Smyth
  6. Technological capabilities and growth: A study of economic convergence among Chinese prefectures By Federico Frattini; Francesco Nicolli; Giorgio Prodi
  7. The patterns of patents in China: By Xie, Zhuan; Zhang, Xiaobo
  8. The impact of outward FDI on the performance of Chinese multinationals By Cozza , Claudio; Rabellotti , Roberta; Sanfilippo, Marco
  9. Hot money and quantitative easing: the spillover effect of U.S. monetary policy on Chinese housing, equity and loan markets By Ho, Steven Wei; Zhang, Ji; Zhou, Hao
  10. Early Health Shocks, Intrahousehold Resource Allocation, and Child Outcomes By Junjian Yi; James J. Heckman; Junsen Zhang; Gabriella Conti
  11. Firm-Level Productivity Spillovers in China's Chemical Industry: A Spatial Hausman-Taylor Approach By Badi H. Baltagi; Peter H. Egger

  1. By: Sandra PONCET (Université de Paris I); Julien GOURDON (FERDI); Laura HERING (FERDI); Stéphanie MONJON (FERDI)
    Abstract: Compared to most countries, China’s value-added tax (VAT) system is not neutral and makes it less advantageous to export a product than to sell it domestically, as exporters may not receive a complete refund on the domestic VAT they have paid on their inputs. However, the large and frequent changes to the VAT refunds which are offered to exporters have been led China to be accused of providing its firms with an unfair advantage in global trade. We use city-specific export-quantity data at the HS6-product level over the 2003-12 period to assess how changes in these VAT rebates have affected Chinese export performance. Our identification strategy relies on triple difference estimates that exploit an eligibility rule which disqualifies processing trade with supplied materials from these rebates. We find that changes in VAT rebates have significant export repercussions: eligible export quantity for a given city-HS6 pair rises by 6.5% following a one percentage-point increase in the VAT rebate. This magnitude yields a better understanding of the strong resistance of Chinese exports during the global recession, in which export rebates increased substantially.
    JEL: F10 F14 O14
    Date: 2014–12
  2. By: Yu, Bingxin; Chen, Kevin Z.; Zhang, Yumei; Zhang, Haisen
    Abstract: The Chinese economy has recently experienced a rapid and fundamental transformation, and the public expenditure on agriculture has also changed to reflect shifts in policy priorities. This paper reviewed public agricultural expenditure in a comprehensive way using detailed expenditure data at different administrative levels. The paper found that public expenditure for agriculture has increased steadily in China; however, the definition of agricultural spending might not precisely measure resources allocated to agricultural production. Some unique features of Chinese agricultural expenditure are identified, namely high decentralization and substantial intergovernmental transfer. The highly decentralized and hierarchical administrative system caused fragmentation in budget and implementation, resulting in rampant inefficiencies. Government expenditure also exhibits considerable regional disparity. This study recommends improving the fiscal system by rebalancing expenditure with revenues, prioritizing agricultural expenditure, and addressing regional disparities.
    Keywords: public expenditure, Agriculture, Agricultural policies, Agricultural development, Governance, Investment, decentralization, regional disparity, transfers,
    Date: 2014
  3. By: Jun Gu; Ingrid Nielsen; Jason Shachat; Russell Smyth; Yujia Peng
    Abstract: A large body of literature attests to the growing social divide between urban residents and rural-urban migrants in China’s cities. This study uses a randomised experiment to test the effect of intergroup contact on attitudes between a group of urban adolescents and a group of rural-urban migrant adolescents. Results showed that intergroup contact in the form of a fun and cooperative puzzle task significantly reduced negative attitudes toward the other group. Implications for desegregated schooling and their broader societal implications in China are discussed.
    Date: 2014–09
  4. By: Won Joong Kim (Department of Economics, Konkuk University, Seoul, Korea); Shawkat Hammoudeh (LeBow College of Business, Drexel University, Philadelphia, PA, USA); Jun Seog Hyun (Department of Economics, Konkuk University, Seoul, Korea); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: The paper empirically analyzes the effect of oil price shocks on China’s economy with special interest in the response of the Chinese interest rate to those shocks. Using different econometric models, i) a time-varying parameter structural vector autoregression (TVP SVAR) model with short-run identifying restrictions, ii) a structural VAR (SVAR) model with the short-run identifying restrictions, and iii) a VAR model with ordering-free generalized impulse response VAR (GIR VAR), we find the response of the Chinese interest rate to the oil shocks is not only time-varying but also showing quite different signs of responses. Specifically, in the earlier sample period (1992:4-2001:10), the interest rate shows a negative response to the oil shock, while in the latter period (2001:11-2014:5) it shows a positive response to the shock. Given the negative response of the world oil production to an oil price shock in the earlier period, the shock is identified as a negative supply shock or a precautionary demand shock, thereby the negative response the interest rate the oil shock is deemed as economy-boosting. The positive response of interest rate the oil shock in the later period, given that this shock is identified as a positive world oil demand shock, gives evidence that stabilization of inflation is one of the main objectives of China’s monetary authority, even though the current main objective of the monetary policy is characterized as “maintaining the stability of the value of the currency and thereby promoting economic growth.” Finally, the variance decomposition results reveal that the oil price shock becomes an increasingly important source in the volatility of China’s interest rate.
    Keywords: Oil price shock, China’s monetary policy, TVP SVAR, SVAR, generalized impulse response
    JEL: C32 E52 O13 O53 Q43
    Date: 2014–12
  5. By: Zhiming Cheng; Russell Smyth
    Abstract: We examine the relationship between sexual activities and happiness using a sample of 3800 adults from China. We establish some firm results about the contribution of sexual activities and relationships to happiness for an important country other than the United States. Our main finding is that those who have more sex and better quality sex, proxied by frequency of orgasm and emotional and physical satisfaction with one’s primary sex partner, are happier. Another major finding is that the happiness maximizing number of sexual partners is one. We also identify important gender differences between men and women. For men, there is a stronger relationship than for women, between the frequency, and physical aspects, of sexual intercourse and happiness. For women, there is a stronger relationship than for men between giving, and receiving, affection to/from their primary sexual partner and happiness.
    Keywords: Happiness, sexual activities, sexual intercourse, subjective wellbeing.
    JEL: H00 J00 D60
    Date: 2014–09
  6. By: Federico Frattini (Department of Economics and Management, University of Ferrara, Italy.); Francesco Nicolli (IRCReS-CNR, Italy; Department of Economics and Management, University of Ferrara, Italy.); Giorgio Prodi (Department of Economics and Management, University of Ferrara, Italy; CCWE - Tsinghua University, Beijing, China.)
    Abstract: The paper focuses on the role of technological capabilities in pushing regional catch-up in China. A leading force behind its fast economic growth has been the government action in reforming rules and institutions and supporting structural change in the long run. The local clustering process of technological capabilities represents an important piece in this strategy. The regional endowment of technological capabilities is approached by the geographical distribution of innovation activities among prefectures. The analysis aims to verify if there is convergence among the prefectural income levels and technological capabilities positively affect the intra-national catching-up process. Accordingly, this contribution presents a growth convergence estimation model that includes four indexes for innovation systems already adopted in literature. Indicators refer to the information about Chinese patent applications at EPO in the period 1996–2010 (OECD REGPAT and Citations databases, January 2014). In order to fit the research questions, patent data have been restricted, re-organized and originally regionalized by the authors running a semantic search of prefectures’ names in the “address” field associated to each Chinese inventor. Main results show that an absolute convergence process already started, although disparities decline slowly, and the accumulation of technological capabilities can foster this dynamic.
    Keywords: Buen Vivir, China, growth, patent, region, catch-up
    JEL: O30 O47 O53 R19
    Date: 2014–12
  7. By: Xie, Zhuan; Zhang, Xiaobo
    Abstract: Innovations are a key driver of long-term economic growth. There has been an explosion of patent filings in China in the past three decades. But empirical studies on the pattern of innovations at the firm level are rather scant primarily due to lack of firm-specific patent data. We have made concerted efforts to match Chinese patent data with a large firm-level database. The matched dataset enables us to examine the patterns of patents at the firm level.
    Keywords: Innovation, patents, intellectual property, Economic development, Gender, Women, microeconomics,
    Date: 2014
  8. By: Cozza , Claudio (BOFIT); Rabellotti , Roberta (BOFIT); Sanfilippo, Marco (BOFIT)
    Abstract: Using a new firm-level database, EMENDATA, this paper investigates the effects on Chinese multinational enterprises of Outward FDI (OFDI) into advanced European countries. Propensity score matching is combined with a difference-in-difference estimator to reduce the problems of self-selection of treated firms in foreign markets and to eliminate time-invariant and unobservable differences between those firms and the controls. The results provide robust evidence in support of the view that China’s OFDI had so far a positive impact on domestic activities in enhancing firms’ productivity and scales of operation, as measured by assets, sales and employment. Distinguishing among such investments on the basis of entry mode shows that acquisitions facilitate early access to intangible assets but are detrimental to financial performance, whereas greenfield investments have a positive impact on the scale and productivity of Chinese investors.
    Keywords: outward FDI; reverse spillovers; performance; Chinese multinationals
    JEL: F49
    Date: 2014–12–04
  9. By: Ho, Steven Wei (Tsinghua University); Zhang, Ji (Tsinghua University); Zhou, Hao (Tsinghua University)
    Abstract: We study a factor-augmented vector autoregression model to estimate the effects of changes in U.S. monetary policy, as well as changes in U.S. policy uncertainty, on the Chinese economy. We find that since the Great Recession, a decline in the U.S. policy rate would result in a significant increase in Chinese regulated interest rates, and rise in Chinese housing investment. One possible reason for this is the substantial inflow of hot money into China. Responses of Chinese variables to U.S. shocks at the zero lower bound are different from that in normal times, which suggest structural changes in both the Chinese economy and the U.S. monetary policy transmission mechanism. Moreover, an increase in U.S. policy uncertainty negatively impacts Chinese stock and real estate market during normal times, but not at the zero lower bound.
    JEL: C3 E4 E5 F3
    Date: 2014–11–01
  10. By: Junjian Yi; James J. Heckman; Junsen Zhang; Gabriella Conti
    Abstract: An open question in the literature is whether families compensate or reinforce the impact of child health shocks. Discussions usually focus on one dimension of child investment. This paper examines multiple dimensions using household survey data on Chinese child twins whose average age is 11. We find that, compared with a twin sibling who did not suffer from negative early health shocks at ages 0-3, the other twin sibling who did suffer negative health shocks received RMB 305 more in terms of health investments, but received RMB 182 less in terms of educational investments in the 12 months prior to the survey. In terms of financial transfers over all dimensions of investment, the family acts as a net equalizer in response to early health shocks for children. We estimate a human capital production function and establish that, for this sample, early health shocks negatively affect child human capital, including health, education, and socioemotional skills. Compensating investments in health as measured by BMI reduce the adverse effects of health shocks by 50%, but exacerbate the adverse impact of shocks on educational attainment by 30%.
    JEL: C23 D13 I12 J13
    Date: 2014–12
  11. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Peter H. Egger (ETH Zurich, Leonhardstrasse 21, 8092 Zurich)
    Abstract: This paper assesses the role of intra-sectoral spillovers in total factor productivity across Chinese producers in the chemical industry. We use a rich panel data-set of 12,552 firms observed over the period 2004-2006 and model output by the firm as a function of skilled and unskilled labor, capital, materials, and total factor productivity, which is broadly defined. The latter is a composite of observable factors such as export market participation, foreign as well as public ownership, the extent of accumulated intangible assets, and unobservable total factor productivity. Despite the richness of our data-set, it suffers from the lack of time variation in the number of skilled workers as well as in the variable indicating public ownership. We introduce spatial spillovers in total factor productivity through contextual effects of observable variables as well as spatial dependence of the disturbances. We extend the Hausman and Taylor (1981) estimator to account for spatial correlation in the error term. This approach permits estimating the effect of time-invariant variables which are wiped out by the fixed effects estimator. While the original Hausman and Taylor (1981) estimator assumes homoskedastic error components, we provide spatial variants that allow for both homoskedasticity and heteroskedasticity. Monte Carlo results show, that our estimation procedure performs well in small samples. We find evidence of positive spillovers across chemical manufacturers and a large and significant detrimental effect of public ownership on total factor productivity.
    Keywords: Technology Spillovers, Spatial econometrics, Panel data econometrics, Firm-level productivity, Chinese firms
    JEL: C23 C31 D24 L65
    Date: 2014–12

This nep-cna issue is ©2015 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.