nep-cna New Economics Papers
on China
Issue of 2016‒01‒29
ten papers chosen by
Zheng Fang
Ohio State University

  1. Who Should I Share Risk with? Gifts can tell : Theory and Evidence from Rural China By Wang, Ruixin
  2. The value of air quality in Chinese cities: Evidence from labor and property market outcomes By Xuan Huang; Bruno Lanz
  3. Fundamentals and the Volatility of Real Estate Prices in China: A Sequential Modelling Strategy By Yongheng Deng; Eric Girardin; Roselyne Joyeux
  4. Frozen In Time: The Much Needed Reform Of Expenditures Assignments In China By Yongzheng Liu; Jorge Martinez-Vazquez; Baoyun Qiao
  5. China and the World Trading System: Will ‘In and Up’ be replaced by ‘Down and Out’? By L Alan Winters
  6. Long-run estimates of interfuel and interfactor elasticities By Chunbo Ma; David I. Stern
  7. Production Sharing in East Asia: China’s Position, Trade Pattern and Technology upgrading By Laike Yang
  8. China's pursuit of environmentally sustainable development: Harnessing the new engine of technological innovation By Wei Jin; ZhongXiang Zhang
  9. China’s GDP per capita from the Han Dynasty to communist times By Kent Deng; Patrick Karl O’Brien
  10. VAR modelling in the presence of China’s rise : an application to the Taiwanese economy By Dungey, Mardi; Vehbi, Tugrul; Martin, Charlton

  1. By: Wang, Ruixin (Tilburg University, Center For Economic Research)
    Abstract: This paper studies how gift exchange may help to overcome limited commitment problem in risk sharing. When efficient contract enforcement is lacking, people rely on friends (or relatives) to share risk since emotional or moral cost of defaulting between friends can help to prevent moral hazard. The problem is how to distinguish between friends and non-friends? Gift expense serves as a signal of friendship since giving a gift is less costly for a friend than a non-friend due to altruism. The model re-evaluates the role of gift exchange in developing economies, and helps to rationalize the large amount of gift exchange in China (10% of living expenditure). As a signal, gift exchange improves the efficiency in risk sharing and facilitates favor exchange, but I also demonstrate that the welfare gains due to this improvement may be offset by increased inequality. By using a unique data set containing detailed records about gift exchange in rural China, the empirical study suggests gift expenses, as a signal, significantly increase the probability of risk sharing. I also show further empirical evidence to the theory by testing more model predictions.
    Keywords: gift exchange; risk sharing; emotinal collateral; signaling
    JEL: O16 O17 L14 D03
    Date: 2016
  2. By: Xuan Huang; Bruno Lanz
    Abstract: Using a dual-market sorting model of workers' location decisions, this paper studies the capitalization of air pollution in wages and property prices across Chinese cities. We exploit quasi-experimental variations in particulate matter (PM10) concentration induced by a policy subsidizing coal-based winter heating in northern China, specifying a regression discontinuity design based on cities' location relative to the policy boundary. We estimate that the elasticity of wages and house prices with respect to PM10 concentration is 0.41 and -0.71 respectively. Our results are robust to the use of an alternative source of exogenous variation in PM10 concentration (sandstorms), supporting the view that the local effect we measure provides policy-relevant information on the value of air quality improvements in China.
    Keywords: Hedonic model; Air pollution; Labor market; Housing prices; Local public goods.
    JEL: H41 J31 R31 Q53
    Date: 2015–11–16
  3. By: Yongheng Deng (National University of Singapore); Eric Girardin (National Centre for Scientific Research (CNRS)); Roselyne Joyeux (Macquarie University)
    Abstract: In a similar way to the stock market, the housing market in China has often been portrayed as highly speculative, giving rise to ¡°bubble¡± concerns. Over the last decade, residential prices increased every year on average by double digits in Beijing or Shanghai (Deng, Gyourko and Wu, 2012). However many observers and researchers argue that the fundamentals of the housing sector, both sector-specific and macroeconomic, may have been the driving force behind housing price volatility. While existing empirical work exclusively relies on downward-biased official housing prices, this paper uses original high-frequency unit level residential price series for Beijing and Shanghai to test alternative hypotheses about the drivers of house price growth. We propose a sequential research strategy including the construction of hedonic prices, explosive unit root tests (Phillips, Shi and Yu, 2014), the filtering of microstructure noise (Bollerslev et al. 2015) and a Mixed Data Sampling (MIDAS) methodology (Ghysels et al, 2007; Engle et al., 2013) which enables us to document that fundamentals can indeed account for movements in housing price volatility, as well as transaction volume in first©\tier cities such as Beijing and Shanghai.
    Date: 2015–11
  4. By: Yongzheng Liu (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University Author-Workplace-Homepage:; Baoyun Qiao (Central University of Finance and Economics in Beijing, China)
    Abstract: China has been carrying out significant fiscal reforms on intergovernmental fiscal relations for over three decades. However, these reforms have largely concentrated on the revenue side of the budget, and generally have not been coordinated with an explicit strategy for the reform of functional expenditure assignments. Currently, there is large consensus that the weaknesses with the current assignment of expenditure responsibilities have become one of the most serious ob-structions---if not the most serious---to the further improvement of China fiscal system. In this paper, we provide a comprehensive review of the actual practice with expenditure assignment among different levels of government in China over the past decades. We highlight the most im-portant issues surrounding the current system qualitatively and quantitatively, and provide a road map and practical recommendations for its future reform.
    Date: 2016–01
  5. By: L Alan Winters
    Abstract: This paper examines the integration of China into the world trading system, focusing on the size and nature of the shocks that this implied for the world economy and the reactions to those shocks proposed by policy makers and academics. While the WTO has acted as a forum in which many of the adjustment pressures created by China’s rapid growth were dealt with fairly constructively, the recent shift by the United States and the EU to mega-regional trade deals, notably the Tran-Pacific Partnership, and that exclude China, marks a dangerous shift away from engaging the world’s second largest economy as an equal in a cooperative fashion.
    Keywords: China, WTO, TPP, imbalances, trade agreements
    Date: 2015–11
  6. By: Chunbo Ma (School of Agricultural and Resource Economics, University of Western Australia); David I. Stern (Crawford School of Public Policy, The Australian National University)
    Abstract: Meta-analyses of interfuel and capital-energy elasticities of substitution show that elasticity estimates are dependent on the type of data – time series, panel, or cross-section – and the estimators used. Econometric theory suggests that the between estimator might generate the best estimates of long-run elasticities but no existing estimates of elasticities of substitution have used it. Alternatively, Chirinko et al. argued in favor of estimating long-run elasticities of substitution using a long-run difference estimator. We provide estimates of China’s interfuel and interfactor elasticities of substitution using the between and long-run difference estimators. To address potential omitted variables bias, we add province level inefficiency and national technological change terms to our regression model. The results show that demand for coal and electricity in China is very inelastic, while demand for diesel and gasoline is elastic. With the exception of gasoline and diesel, there are limited substitution possibilities among the fuels. Substitution possibilities are greater between energy and labor than between energy and capital. The results are quite different to some previous studies for China but coincide well with the patterns found in meta-analyses for long-run estimates of elasticities of substitution.
    Keywords: energy; substitution; elasticity; demand; China
    JEL: D24 Q40
    Date: 2016–01
  7. By: Laike Yang
    Abstract: International production sharing and trade fragmentation has become a key feature of East Asian economic development in recent decades. China has taken advantage of this process and has transformed into a global manufacture center within a thirty-year period. The emergence of China has led to the restructuring of the Asian production network and changed the trade pattern in the region. Firms in advanced Asian economies have relocated their production to China, using it as an assembly base and exporting their final products to the US and Europe. This paper analyzes these trends and changes in the region, studying China’s position in East Asia’s production sharing and trade fragmentation, as well as ascertaining how it influences China’s industrial and technological upgrading. We find that China has moved to the Center of East Asia’s production network and become the key partner of its neighboring countries. China’s manufacturing technology has significant upgraded. There is a technology convergence between China and ASEAN-4, although the gap between China and Japan and South Korea remains fairly large and noticeable.
    Keywords: Production Sharing; Intra Industry Trade, East Asia, China
    JEL: F14 F15 F19
    Date: 2014–06
  8. By: Wei Jin (School of Public Policy and Management, Zheijang University); ZhongXiang Zhang (College of Management and Economics, Tianjin University)
    Abstract: Whether China continues its business-as-usual investment-driven, environment-polluting growth pattern or adopts an investment and innovation-driven, environmentally sustainable development holds important implications for both national and global environmental governance. Building on a Ramsey-Cass-Koopmans growth model that features endogenous technological change induced by R&D and knowledge stock accumulation, this paper presents an exposition, both analytically and numerically, of the mechanism underlining China’s economic transition from an investment-driven, pollution-intensive to an investment and innovation-driven, environmentally sustainable growth path. We show that if R&D technological innovation is incorporated into China’s growth mechanism, then at some tipping point in time when marginal welfare gain of R&D for knowledge accumulation becomes equalized with that of investment for physical asset deployment, China’s economy will launch capital investment and R&D simultaneously and make a transition to a sustainable growth path along which consumption, capital investment, and R&D have a balanced share of 5: 4: 1, consumption, capital stock, and knowledge stock all grow at a rate of 4.9%, and environmental quality improves at a rate of 2.5%. In contrast, if R&D technological innovation is not harnessed as a new growth engine, then China’s economy will follow its business-as-usual investment-driven growth path along which standalone accumulation of dirty physical capital stock will lead to a more than 200-fold increase in environmental pollution.
    Keywords: endogenous technological change; sustainable development; economic growth model; China’s economic transition
    JEL: Q55 Q58 Q43 Q48 O13 O31 O33 O44 F18
    Date: 2016–01
  9. By: Kent Deng; Patrick Karl O’Brien
    Abstract: Our article is a critical survey of the concepts and data utilized by economists and economic historians that purport to measure relative levels and long term trends in GDP per capita from the Han Dynasty to Communist times. We favour attempts to extend macro-economic analysis and its associated quantification to China’s long imperial history, but have concluded that estimates calibrated in international dollars for 1900, or 2005 or 2011 are not fit for that purpose. Furthermore, and after surveying recent endeavours to reconstruct the published secondary and official statistical sources available for the measurement of primary production for Ming and Qing China (1368-1911), we reluctantly suggest that Kuznetian paradigms for empirical economics are probably not viable, either for the measurement of the empire’s growth over time or for reciprocal comparisons with European economies. This is because on both conceptual and statistical grounds the concept and associated metric for GDP per capita does not travel easily and securely between the fiscal systems of China and the West (Yun-Casallila and O’Brien 2012).
    Keywords: GDP accounting; Kuznetsian paradigm; Great Divergence
    JEL: Z10
    Date: 2016–01
  10. By: Dungey, Mardi (University of Tasmania, Tasmanian School of Business & Economics); Vehbi, Tugrul; Martin, Charlton
    Abstract: This paper uses the impulse responses of a structural VECM to compare the effect of output shocks originating from the US and China on the Taiwanese economy. From 1980 to 2011 the impact of a US output shock on Taiwan is seven times greater than one originating in China, yet from 2000 to 2011 the impact from either country is the same. Exposure to China has grown more rapidly than exposure to the US, reflecting the rapid growth in cross-strait trade intensity between China and Taiwan this century. Other East Asian economies that have booming trade with China are likely to exhibit similar results, questioning the common practice of using the US as a proxy for foreign effects in the region. We provide two examples motivating the need to include both US and Chinese foreign effects in modelling Taiwan; one based on the evolving economic openness of Taiwan and the second from the East Asia monetary union literature.
    Keywords: China, VECM, Taiwan
    Date: 2014–07

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