nep-cna New Economics Papers
on China
Issue of 2015‒02‒28
23 papers chosen by
Zheng Fang
Ohio State University

  1. Do Negative Native-Place Stereotypes Lead to Discriminatory Wage Penalties in China's Migrant Labor Markets? By Maurer-Fazio, Margaret ; Connelly, Rachel ; Thi Tran, Ngoc-Han
  2. The China (Shanghai) Pilot Free Trade Zone: Background, Developments and Preliminary Assessment of Initial Impacts By Daqing Yao ; John Whalley
  3. The Real Value of China's Stock Market By Jennifer N. Carpenter ; Fangzhou Lu ; Robert F. Whitelaw
  4. The handover in Hong Kong : Impact on business formation By Carroll, G.R. ; Feng, M. ; Kuilman, J.G.
  5. The Diffusion of Information and Behavior in Social Networks: Renewable Energy Technology Adoption in Rural China By Pan He ; Marcella Veronesi
  6. Multi-dimensional Intertemporal Poverty in Rural China By Jing You ; Sangui Wang ; Laurence Roope
  7. Love, money, and old age support : does parental matchmaking matter ? By Huang, Fali ; Jin, Ginger Zhe ; Xu, Lixin Colin
  8. Bubble or Riddle? An Asset-Pricing Approach Evaluation on China’s Housing Market By Qu FENG ; Guiying Laura WU
  9. The Domestic Segment of Global Supply Chains in China under State Capitalism By Heiwai Tang ; Fei Wang ; Zhi Wang
  10. Financial Integration and China’s Global Impact By Rod Tyers
  11. Do innovation dimensions matter in China’s cross-regional income differences? By Yang, Jingjing ; Khalil, Sana
  12. FDI in China and global production networks: Assessing the role of and impact on big world players (East Asia, Japan, EU28 and U.S.) By Zhou, Jing ; Latorre, María C.
  13. Energy-saving and emission-abatement potential of Chinese coal-fired power enterprise: A non-parametric analysis By Wei, Chu ; Löschel, Andreas ; Liu, Bing
  14. Stochastic Population Analysis: A Functional Data Approach By Lei Fang ; Wolfgang K. Härdle ; ;
  15. Wealth Effects of Rare Earth Prices and China's Rare Earth Elements Policy By Maximilian Mueller ; Denis Schweizer ; Volker Seiler
  16. The internationalization of the RMB, capital market openness, and financial reforms in China By Aizenman , Joshua
  17. Enjoying the Fruits of their Labor: Redirecting exports to Asian consumers By THORBECKE, Willem
  18. Trilemma Challenges for the People's Republic of China By Kawai, Masahiro ; Liu, Li-Gang
  19. Carbon policy in a high-growth economy: The case of China By Lucas Bretschger ; Lin Zhang
  20. Tracing CO2 emissions in global value chains By Meng, Bo ; Peters, Glen ; Wang, Zhi
  21. China's Inter-regional Trade of Virtual Water: a Multi-regional Input-output Modeling By Xueting Zhao
  22. Financial market reform – A new driver for China’s economic growth? By Chen, Yu-Fu ; Funke , Michael ; Tao , Kunyu
  23. China’s Contribution to Development Cooperation: Ideas, Opportunities and Finances By Justin Yifu LIN ; Yan WANG

  1. By: Maurer-Fazio, Margaret (Bates College ); Connelly, Rachel (Bowdoin College ); Thi Tran, Ngoc-Han (Graduate Institute of International and Development Studies, Geneva )
    Abstract: China's linguistic and geographic diversity leads many Chinese individuals to identify themselves and others not simply as Chinese, but rather by their native place and provincial origin. Negative personality traits are often attributed to people from specific areas. People from Henan, in particular, appear to be singled out as possessing a host of negative traits. Such prejudice does not necessarily lead to wage discrimination. Whether or not it does depends on the nature of the local labor markets. This chapter uses data from the 2008 and 2009 migrant surveys of the Rural-Urban Migration in China Project (RUMiC) to explore whether native-place wage discrimination affects migrant workers in China's urban labor markets. We analyze the question of wage discrimination among migrants by estimating wage equations for men and women, controlling for human capital characteristics, province of origin, and destination city. Of key interest here are the variables representing provinces of origin. We find no systemic differences by province of origin in the hourly wages of male and female migrants. However, in a few specific cases, we find that migrants from a particular province earn significantly less than those from local areas. Male migrants from Henan in Shanghai are paid much less than their fellow migrants from Anhui. In the Jiangsu cities of Nanjing and Wuxi, female migrants from nearby Anhui are paid much less than intra-provincial Jiangsu migrants.
    Keywords: migrants, discrimination, wages, China, stereotypes, native-place, labor markets
    JEL: J71 J23 J61 J31 O15 O53 P36
    Date: 2015–02
  2. By: Daqing Yao ; John Whalley
    Abstract: The China (Shanghai) Pilot Free Trade Zone (SPFTZ) founded one year ago is a trial for China’s new round of reform and opening out, which has promised liberalization on capital account and trade facilitation as its main objectives. Here we discuss the differences between the SPFTZ and other free trade areas, and the developments of the SPFTZ in the past year. We also make a preliminary assessment of the SPFTZ’s initial impacts, especially of its impact on China’s capital account opening and financial liberalization. It is possible that the successful practice of the SPFTZ and more pilot policies replicated in China will give rise to a more balanced Chinese economy in the following decade.
    JEL: F49
    Date: 2015–02
  3. By: Jennifer N. Carpenter ; Fangzhou Lu ; Robert F. Whitelaw
    Abstract: China is the world’s largest investor and greatest contributor to global economic growth by wide margins, and will remain so for many years. The efficiency of its financial system in allocating capital to investment will be important to sustain this growth. This paper shows that China’s stock market has a crucial role to play. Since the reforms of the last decade, China’s stock market has become as informative about future corporate profits as in the US. Moreover, though it is a segmented market, Chinese investors price risk and other stock characteristics remarkably like investors in other large economies. They pay up for large stocks, growth stocks, and long shots, and they discount for illiquidity and market risk. China’s stock market no longer deserves its reputation as a casino. In addition, the trend of stock price informativeness over the last two decades is highly correlated with that of corporate investment efficiency. China’s stock market appears to be aggregating diffuse information and generating useful signals for managers. On the buy side, because of its low correlation with other stock markets and high average returns, China’s stock market offers high alpha to diversified global investors who can access it. Yet this high alpha amounts to an inflated cost of equity capital, constraining the investment of China’s smaller, more profitable enterprises. Further reforms that open this market to global investors and improve stock price informativeness will be important to increase China’s investment efficiency and fuel its continued economic growth. Finally, we interpret the stock market’s recent gyrations through the lens of this research, arguing that its post-crisis lag was a rational downward adjustment to competition from the rapidly expanding shadow banking sector, and its enormous rally last year is a cheer for the roll out of deposit insurance and other Third Plenum reforms. More than ever, China’s stock market is a crucial counterpart to its extraordinary, relationship-driven, but opaque banking sector. China’s stock market may now be the world’s most important crystal ball.
    JEL: E44 G12 G15 G18 O16 O53 P20 P34
    Date: 2015–02
  4. By: Carroll, G.R. ; Feng, M. ; Kuilman, J.G. (Tilburg University, School of Economics and Management )
    Abstract: Although the 1997 handover of Hong Kong from the United Kingdom to China was a major political transformation, its impact on new business formation has not been fully scrutinized. Theory suggests contradictory forces may operate before, during, and after such a transformation: either a decline due to uncertainty or an increase due to opportunities created. To determine which force dominated, we first decomposed the analysis by the size of major<br/>affected social groups, then analyzed the expected impact. This led us to predict an aggregate depression of business formation, although this effect likely showed great variation and attenuated over time. Our empirical assessment relied<br/>on detailed monthly records of business registrations from 1975 to 2013, using GARCH time series modeling to analyze total registrations as well as the proportions for local and non-local businesses. Controlling for macro socioeconomic conditions, we find the registration rate dropped significantly throughout the post-handover era, implying a dominance of uncertainty. Further, new registrations displayed higher volatility following the 1984 announcement of the handover, reflecting shifting public sentiment in the interim about Hong Kong’s economic prospects. We also find a post-handover<br/>preference for forming non-local firms with higher asset mobility; this preference diminishes with time.
    Date: 2014
  5. By: Pan He (ETH Zurich ); Marcella Veronesi (Department of Economics (University of Verona) )
    Abstract: Adopting renewable energy technologies has been seen as a promising way to reduce CO2 emissions and deforestation. This paper investigates how social networks may affect renewable energy technology adoption. We distinguish two channels through which social networks may play a role: (i) the diffusion of information; and (ii) the diffusion of behavior. Most empirical studies fail to quantitatively separate the diffusion of information and behavior in social networks. We conduct a survey on biogas technology adopting in rural China to identify individuals’ egocentric information networks. We find that both the diffusion of information and behavior drive farmers’ technology adoption. Farmers with larger egocentric information networks and a larger fraction of known adopters are more likely to adopt the biogas technology. In addition, we collect data on several attributes of alters to explore the composition of social networks. We find heterogeneous social network effects across different types of alters. Alters who have close relationships with egos such as friends and relatives or that are trusted by egos affect egos’ adoption through the diffusion of information, while less trusted alters such as government officials affect egos’ adoption through their adoption behavior.
    Keywords: Social networks, renewable energy, technology adoption, information diffusion, behavior diffusion, biogas, China
    JEL: D83 D85 Q55
    Date: 2015–02
  6. By: Jing You ; Sangui Wang ; Laurence Roope
    Abstract: We analyse intertemporal poverty in two important dimensions - income and nutrition - in less developed northwest China during 2000-2004.  A generalised recursive selection model is proposed which enables simultaneous estimation of the causes of intertemporal poverty within and between dimensions.  Improvement in agricultural production is crucial for reducing both dimensions of intertemporal poverty.  We find evidence suggestive of intertemporal income-nutrition poverty traps.  Higher labour productivity, especially in agriculture rather than local off-farm activities or out-migration, holds much potential for breaking the vicious circle.  Agricultural innovation and mechanisation, regarded by the government as indispensable, yield mixed outcomes for intertemporal multi-dimensional poverty reduction.
    Keywords: intertemporal poverty, multi-dimensional poverty, rural China
    JEL: D63 I3 O52
    Date: 2014–12–18
  7. By: Huang, Fali ; Jin, Ginger Zhe ; Xu, Lixin Colin
    Abstract: Parental involvement in matchmaking may distort the choice of spouse because parents are willing to substitute love for market and household production, which are more sharable between parents and their children. This paper finds supportive evidence in a survey of Chinese couples. In both rural and urban areas, parent matchmaking is associated with less marital harmony between the couple, more submissive wives, and a stronger belief in old age support for the son. In contrast, its association with couple income differs by rural and urban regions, perhaps because of differences in earning opportunities and in the enforcement of the one-child policy. Moreover, parent matchmaking is associated with more children for the couple and lower schooling for wives only in rural areas. Thus, in places with a stronger need for old age support, parents tend to be involved in matchmaking and use it to select submissive daughters-in-law to ensure old age support. The results render support to Becker, Murphy and Spenckuch (2015), who imply that parents would meddle with children's preferences to ensure their commitment to providing old age support.
    Keywords: Population&Development,Population Policies,Gender and Law,Youth and Governance,Rural Poverty Reduction
    Date: 2015–02–01
  8. By: Qu FENG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332 ); Guiying Laura WU (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332 )
    Abstract: Rapid house price growth and high price-to-income ratio in major Chinese cities have aroused a hot debate on whether there is an asset bubble in China's residential housing market. To investigate this question, we employ an equilibrium asset-pricing approach, which suggests an non-arbitrage condition on the rent-to-price ratio. This ratio should be equal to the difference between the user cost of housing capital and the expected appreciation in house prices. Using a novel micro-level data set on pair-wise matched price-to-rent ratio collected in the fourth quarter of 2013, and forecasting the expected house price appreciation based on fundamental factors, our empirical exercises do not suggest the existence of a house price bubble at the national level. However, this conclusion highly depends on the expected income growth rate and may not apply to individual markets.
    Keywords: House Prices, Asset Pricing Approach, Rent-to-Price Ratio
    JEL: R21 G12
    Date: 2015–02
  9. By: Heiwai Tang (Johns Hopkins University and Hong Kong Institute for Monetary Research ); Fei Wang (University of International Business and Economics ); Zhi Wang (United States International Trade Commission )
    Abstract: This paper proposes methods to incorporate firm heterogeneity in the standard input-output table¡Vbased approach to portray the domestic segment of global value chains in a country. The analysis uses Chinese firm census data for the manufacturing and service sectors, along with constrained optimization techniques. The conventional input-output table is split into sub-accounts, which are used to estimate direct and indirect domestic value added in exports of different types of firms. The analysis finds that in China, state-owned enterprises and small and medium domestic private enterprises have much higher shares of indirect exports and ratios of value-added exports to gross exports compared with foreign-invested and large domestic private firms. Based on input-output tables for 2007 and 2010, the paper finds increasing value-added export ratios for all firm types, particularly for state-owned enterprises. It also finds that state-owned enterprises are consistently more upstream while small and medium domestic private enterprises are consistently more downstream within industries. These findings suggest that state-owned enterprises still play an important role in shaping China¡¦s exports.
    Keywords: Value-Added Trade, Global Supply Chain, Intra-National Trade, State Capitalism
    JEL: F1 C67 C82
    Date: 2015–02
  10. By: Rod Tyers
    Abstract: Product and financial market integration determine the global implications of China’s recent growth surge and its on-going transition from export led growth. These alter China’s structural imbalance (its excess product supply and excess saving), which in turn shifts the international terms of trade, changing asset yields causing deflationary and then inflationary pressures abroad. The effects are here quantified using a global macro model with national portfolio rebalancing, in which asset differentiation is used to index financial integration. The growth surge is found to have conferred on the advanced economies gains in their terms of trade, incompletely offset by structural unemployment. By contrast, the global effects of the transition are shown to reverse some of these impacts and to be amplified by further financial integration, particularly for the US.
    Keywords: Financial integration, China, imbalances, saving, monetary policy, spill-overs
    JEL: F42 F43 F47
    Date: 2015–01
  11. By: Yang, Jingjing ; Khalil, Sana
    Abstract: This paper studies the interlinks between innovation inputs and outputs and between innovation outputs and economic development. Using a panel data-set from 31 regions of China, we show that the difference in regional innovation output can be significantly explained by R&D manpower and expenditure, highly educated students, and public education spending, while GDP is linked to patent, high-tech export share, and new product sales. Our findings provide support for the use of government R&D subsidies and education rebate.
    Keywords: innovation; R&D; education; patents; economic development
    JEL: O1 O3
    Date: 2014–02–06
  12. By: Zhou, Jing ; Latorre, María C.
    Abstract: This paper analyzes several effects of FDI accruing to Textiles, Chemicals, Electronics and Machinery in China. Though the four sectors have contrasting production technologies and vary largely in trade patterns, the related Chinese exports and imports still follow a general trend: East Asia and Japan are the main intermediate suppliers while the rest of regions play more the role of final markets. The paper describes the networks among big regions, providing their relative importance across different levels (local industry, global industry, host economy and world economy). It also estimates a rich set of regional impacts after the rising FDI inflows.
    Keywords: Multilevel analysis, Globalization, Industrial Organization, MNEs and Economic Growth in Emerging Markets
    JEL: C68 F14 F21
    Date: 2015–02–20
  13. By: Wei, Chu ; Löschel, Andreas ; Liu, Bing
    Abstract: In the context of soaring demand for electricity, mitigating and controlling greenhouse gas emissions is a great challenge for China's power sector. Increasing attention has been placed on the evaluation of energy efficiency and CO2 abatement potential in the power sector. However, studies at the micro-level are relatively rare due to serious data limitations. This study uses the 2004 and 2008 Census data of Zhejiang province to construct a non-parametric frontier in order to assess the abatement space of energy and associated CO2 emission from China's coal-fired power enterprises. A Weighted Russell Directional Distance Function (WRDDF) is applied to construct an energy-saving potential index and a CO2 emission-abatement potential index. Both indicators depict the inefficiency level in terms of energy utilization and CO2 emissions of electric power plants. Our results show a substantial variation of energy-saving potential and CO2 abatement potential among enterprises. We find that large power enterprises are less efficient in 2004, but become more efficient than smaller enterprises in 2008. State-owned enterprises (SOE) are not significantly different in 2008 from 2004, but perform better than their non-SOE counterparts in 2008. This change in performance for large enterprises and SOE might be driven by the "top-1000 Enterprise Energy Conservation Action" that was implemented in 2006.
    Keywords: Energy-saving potential,CO2 abatement potential,Weighted Russell Directional Distance Function,Coal-fired power enterprise
    Date: 2015
  14. By: Lei Fang ; Wolfgang K. Härdle ; ;
    Abstract: Based on the Lee-Carter (LC) model, the benchmark in population forecasting, a variety of extensions and modifications are proposed in this paper. We investigate one of the extensions, the Hyndman-Ullah (HU) method and apply it to Asian demographic data sets: China, Japan and Taiwan. It combines ideas of functional principal component analysis (fPCA), nonparametric smoothing and time series analysis. Based on this stochastic approach, the demographic characteristics and trends in different Asian regions are calculated and compared. We illustrate that China and Japan exhibited a similar demographic trend in the past decade. We also compared the HU method with the LC model. The HU method can explain more variation of the demographic dynamics when we have data of high quality, however, it also encounters problems and performs similarly as the LC model when we deal with limited and scarce data sets, such as Chinese data sets due to the substandard quality of the data and the population policy.
    Keywords: Functional principal component analysis; Nonparametric smoothing; Mortality forecasting; Fertility forecasting; Asian demography; Lee-Carter model, Hyndman-Ullah method
    JEL: C14 C32 C38 J11 J13
    Date: 2015–02
  15. By: Maximilian Mueller (WHU–Otto Beisheim School of Management ); Denis Schweizer (Concordia University ); Volker Seiler (University of Paderborn )
    Abstract: Rare earth elements (REEs) have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China’s quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of high- tech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries (wealth transfer motive). In fact, export restrictions on REEs were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the WTO. This paper analyzes possible wealth transfer effects by focusing on export quota announcements (so-called MOFCOM announcements) by China, and the share price reactions of Chinese REE suppliers, U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to China’s REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility.
    Keywords: Announcement Effects, Event Study, Rare Earths Elements, WTO
    JEL: F13 F52 G14 Q31 Q34 Q37 Q38
    Date: 2015–01
  16. By: Aizenman , Joshua (BOFIT )
    Abstract: This paper provides an overview of Chinese financial and trade integration in recent decades, and the challenges facing China in the coming years. China had been a prime example of export-led growth, benefiting from learning by doing, and by adopting foreign know-how, supported by a complex industrial policy. While the resultant growth has been spectacular, it comes with hidden but growing costs and distortions. The Chinese export-led growth path has been challenged by its own success, and the Global Financial Crisis forced China toward rebalancing, which is a work in progress. Reflecting on the internationalization of the CNY, one expects the rapid accelerating of the commercial internationalization of the CNY. In contrast, there are no clear-cut reasons to rush with the full CNY financial internationalization: The gains from CNY financial internationalization are overrated.
    Keywords: export led growth; CNY internationalization; mercantilism; financial integration; FDI
    JEL: E60 F36 F40 O24 O40
    Date: 2015–02–12
  17. By: THORBECKE, Willem
    Abstract: There has been an explosion of parts and components traded within East Asian production networks. China has emerged as the final assembly point for the goods produced. These goods then flow primarily outside of the region. When the Global Financial Crisis (GFC) occurred, the decrease in Western demand led to a synchronized decline in Asian exports. If more final goods could flow to Asian consumers, this would provide insurance against another slowdown in the rest of the world. This paper uses a gravity model to investigate if emerging Asia is importing fewer consumption goods than predicted. The results indicate that, after the GFC, China and the Association of Southeast Asian Nations (ASEAN) have imported more final goods than expected. Nevertheless, the ratio of China's imports per capita relative to gross domestic product (GDP) per capita remains much lower than the corresponding ratio for other countries. This highlights the need to address structural issues such as tariffs that can lead to the under-importing of final goods.
    Date: 2015–02
  18. By: Kawai, Masahiro (Asian Development Bank Institute ); Liu, Li-Gang (Asian Development Bank Institute )
    Abstract: This paper first reviews recent developments in exchange rate regimes, capital account liberalization, interest rate liberalization, and monetary policymaking in the People's Republic of China (PRC). It then observes that the PRC's monetary policy autonomy may have been reduced with falling capital control effectiveness and a rigid exchange regime that is still tightly managed against the United States (US) dollar. This hypothesis is investigated empirically using both the Taylor rule and the McCallum-like rule to test whether the PRC's money market interest rate and/or quantity of money supply are being increasingly influenced by the US interest rate or reserve accumulation. The paper concludes that there is considerable evidence suggesting diminishing monetary policy autonomy in the PRC. To regain policy autonomy, the monetary authority needs to substantially increase exchange rate flexibility of the renminbi as long as it continues to pursue capital account opening.
    Keywords: trilemma challenges; exchange rate regimes; monetary policy autonomy; peoples republic of china; taylor rule; mccallum rule
    JEL: E52 E58
    Date: 2015–02–16
  19. By: Lucas Bretschger ; Lin Zhang
    Abstract: There is widespread concern that an international agreement on stringent climate policies will not be reached because it would imply too high costs for fast growing economies like China.  To quantify these costs we develop a general equilibrium model with fully endogenous growth.  The framework includes disaggregated industrial and energy sectors, endogenous innovation, and sector-specific investments.  We find that the implementation of Chinese government carbon policies until 2020 causes a welfare reduction of 0.3 percent.  For the long run up to 2050 we show that welfare costs of internationally coordinated emission reduction targets lie between 3 and 8 percent.  Assuming faster energy technology development, stronger induced innovation and rising energy prices in the reference case reduces welfare losses significantly.  We argue that increased urbanization raises the costs of carbon policies due to altered consumption patterns.
    Keywords: Carbon policy, China, Endogeneous growth, Induced innovation, Urbanization
    JEL: Q54 O41 O53 C68
    Date: 2014–07–31
  20. By: Meng, Bo ; Peters, Glen ; Wang, Zhi
    Abstract: This paper integrates two lines of research into a unified conceptual framework: trade in global value chains and embodied emissions. This allows both value added and emissions to be systematically traced at the country, sector, and bilateral levels through various production network routes. By combining value-added and emissions accounting in a consistent way, the potential environmental cost (amount of emissions per unit of value added) along global value chains can be estimated. Using this unified accounting method, we trace CO2 emissions in the global production and trade network among 41 economies in 35 sectors from 1995 to 2009, basing our calculations on the World Input–Output Database, and show how they help us to better understand the impact of cross-country production sharing on the environment.
    Keywords: Developing countries, China, Developed countries, International trade, Trade policy, Air pollution, Environmental problems, Environmental policy, Value-added, Embodied emissions, Global value chains
    JEL: E01 F1 F14 F18 Q5 Q56
    Date: 2015–01–13
  21. By: Xueting Zhao (Regional Research Institute, West Virginia University )
    Abstract: This study focuses on the measure of inter-regional trade of virtual water, defined as the freshwater consumed for producing traded goods and services, to explain the relationship between China’s regional virtual water and the increasing water demand. By using the multi-regional input-output (MRIO) tables of 2002 and 2007 with the regional sectoral water use, this study analyzes virtual water in trade, domestic trade in virtual water, and the regional trade balance of virtual water. The results show that: (1) water use efficiency has increased in China; (2) the major source of the regional virtual water in trade are domestic inter-regional trade; and (3) a region’s virtual water depends on its water resources availability, economic structure, as well as the region’s position in domestic supply chain.
    Keywords: virtual water, multi-regional input-output(MRO)model, China
    JEL: C67 Q25 R11
    Date: 2014–12
  22. By: Chen, Yu-Fu (BOFIT ); Funke , Michael (BOFIT ); Tao , Kunyu (BOFIT )
    Abstract: This paper analyses the financial distortions – growth nexus in China using a tractable general equilibrium modelling approach in which heterogeneous private and state-owned firms interact. The focal points of the model are financial frictions and reallocations of factors of production across firms. The calibrated version of the model elicits the important message that the adoption of a comprehensive financial market reform package abolishing financial distortions will lead to substantial output gains. Thus, structural policies leading to more efficient allocation of factors of production will remain a key policy challenge in China in the years to come.
    Keywords: financial distortions; financial liberalisation; general equilibrium model; China
    JEL: C68 G10 G38 O10
    Date: 2015–02–23
  23. By: Justin Yifu LIN (FERDI ); Yan WANG (FERDI )
    Abstract: Conventional economic theories seem to be inadequate in explaining the diverse and multipolar world we live in. Having lost confidence in the Washington consensus, developing countries are increasingly looking East for development experiences and ideas: what worked, why and how. This paper examines China’s role in development cooperation from the angle of structural transformation as a major driver of growth and job creation.  Being a bit ahead in the structural transformation process, China can contribute ideas, tacit knowledge, implementation capacity, opportunities as well as finances. Based on a joint learning model, developing countries choose partners based on their respective comparative advantages, instruments of interaction and degree of complementarity. Countries that have a higher number of revealed comparative advantage (RCA) in sectors that needed strongly would be in a better position to help in structural transformation. We use empirical evidence to show that China-financed infrastructure projects do address Africa’s infrastructure bottlenecks, and in addition, China’s industrial upgrading and outward investment provide opportunities for light manufacturing development in low-income developing countries. Further, expanding the definitions of international aid or cooperation could induce more development financing from various sources. Rationales of China-led grand vision of “One Belt One Road” are discussed.
    JEL: F35
    Date: 2015–01

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