nep-cna New Economics Papers
on China
Issue of 2017‒01‒15
thirteen papers chosen by
Zheng Fang
Ohio State University

  1. Do Siblings Take Your Food Away? Using China's One-Child Policy to Test for Child Quantity-Quality Trade-Offs By Yun Liang; John Gibson
  2. Determining minimum wages in China: Do economic factors dominate? By Christian Dreger; Reinhold Kosfeld; Yanqun Zhang
  3. Entrepreneurial Activities and Institutional Environment in China By Luo, Bei; Chong, Terence Tai Leung
  4. Housing Prices and Business Cycle in China: A DSGE Analysis By He, Qing; Liu, Fangge; Qian, Zhongxin; Chong, Terence Tai Leung
  5. On the train to brain gain in rural China By Zhang, Yi; Matz, Julia Anna
  6. Land Policy and Urbanization in the People’s Republic of China By Zhang, Li; Xu, Xianxiang
  7. Key Issues of Central and Local Government Finance in the People’s Republic of China By Qichun, Zhang; Shufang, Li
  8. A Tale of Transition; An Empirical Analysis of Economic Inequality in Urban China, 1986–2009 By Haiyan Ding; Hui He
  9. Structural Change and Income Distribution: Accounting for Regional Inequality in the People’s Republic of China and Its Changes during 1952–2012 By Wan, Guanghua; Wang, Chen; Zhang, Xun
  10. Persistent high-growth firms in China's manufacturing By Daniele Moschella; Federico Tamagni; Xiaodan Yu
  11. China’s Rising IQ (Innovation Quotient) and Growth; Firm-level Evidence By Hui He; Nan Li; Jing Fang
  12. Spillovers of United States and People’s Republic of China Shocks on Small Open Economies: The Case of Indonesia By Harahap, Berry; Bary, Pakasa; Panjaitan, Linda; Satyanugroho, Redianto
  13. "Province-Managing-County" Fiscal Reform, Land Expansion, and Urban Growth in China By Yongzheng Liu; James Alm

  1. By: Yun Liang (University of Waikato); John Gibson (University of Waikato)
    Abstract: We test for the existence of a trade-off between child quantity and quality in Chinese families. We use changes over time and space in the local stringency of the one-child policy as a source of exogenous variation in family size. Investment in child quality is measured by intake of three nutrients, using seven waves of data from the China Health and Nutrition Survey. For all three nutrients, a quantity-quality trade-off is apparent, which persists for fats if child-specific effects are introduced. The trade-off would be less apparent if exogenous sources of variation in family size were ignored.
    JEL: I12 J13 O15
    Date: 2017–01–12
  2. By: Christian Dreger; Reinhold Kosfeld; Yanqun Zhang
    Abstract: Minimum wages may be an important instrument to reduce income inequality in a society and to promote socially inclusive economic growth. While higher minimum wages can support the Chinese transformation towards consumption driven growth, they can worsen the price competitiveness in export markets. As they differ throughout the country, this paper investigates their determinants at the regional level. In addition to a broad set of economic determinants, such as per capita income and consumption, consumer prices, unemployment and industrial structures, spatial effects are taken into account. They might arise for different reasons, including competition of local policymakers. The results show that the impact of economic variables declines, once spatial spillovers are considered. Although the minimum wage regulation pursues the relevance of economic factors in the determination of the appropriate levels, the actual development is largely driven by regional dependencies. As minimum wage standards set by local officials do not fully reflect the regional economic development, further reforms should be on the agenda.
    Keywords: Chinese transformation; minimum wages; spatial effects
    JEL: J30 R23 C23
    Date: 2016–12
  3. By: Luo, Bei; Chong, Terence Tai Leung
    Abstract: This paper aims to examine the relationship between the quality of an institutional environment and the characteristics of entrepreneurial activities within the context of China. An event study was conducted to investigate the impacts of the announcement of the Forbes China Rich List on prices of the shares associated with entrepreneurs on the list. This paper concludes that the quality of an institutional environment is greatly negatively related to unproductive entrepreneurial activities.
    Keywords: Forbes; Entrepreneurial activities; Institutional environment.
    JEL: G3 L26
    Date: 2016–10–05
  4. By: He, Qing; Liu, Fangge; Qian, Zhongxin; Chong, Terence Tai Leung
    Abstract: We investigate the interaction between the real estate market and the business cycle volatility in China over the past two decades. A Bayesian dynamic stochastic general equilibrium (DSGE) model with nominal stickiness and collateral constraints is estimated. It is found that shocks from the housing market (e.g., loan-to-value ratio and housing preference shocks) affect the macroeconomy of China. The interactive feedback between credit constraints and housing prices amplifies the impact of various economic shocks, which plays an important role in explaining the business cycle volatility in China.
    Keywords: housing prices; business cycle; DSGE; China
    JEL: E32 E42 R31
    Date: 2016–07–21
  5. By: Zhang, Yi; Matz, Julia Anna
    Abstract: This study investigates the well-researched relationship between migration and the formation of human capital in the source region using a novel instrument: the existence of a local train station. We make use of Chinese panel data and of the fact that the decision to build a new train station is taken by the central government and unrelated to characteristics of a rural village receiving the station. As an intermediate result we find that train stations are negatively related to migration outflows, thus indicating that the facilitation of local employment through economic integration outweighs the reduction of migratory costs. Investigating variation within villages over time in the instrumental variables approach for the central research question, we see a positive effect of out-migration on educational attainment in the source region. Additional results suggest that the effect is stronger for male and young stayers.
    Keywords: Migration, human capital formation, instrumental variables, China, Consumer/Household Economics, Labor and Human Capital, D10, I25, J61,
    Date: 2017–01
  6. By: Zhang, Li (Asian Development Bank Institute); Xu, Xianxiang (Asian Development Bank Institute)
    Abstract: We explore the relationship between land policies and urbanization in the PRC. We analyze the land policies associated with urbanization and summarize findings related to central and local government involvement in the process of urbanization. In particular, we explore the relationship between urbanization and land leasing. We find that the urbanization rate and the land leasing revenue are positively related. Land leasing provides financial support for PRC urbanization, but damages the interest of landless peasants. Especially in the west, population urbanization lags behind land urbanization, resulting in much higher land and house prices in the east than those in inland PRC. Current land and household registration policies hinder the mobility of production factors, including construction land and the labor force, and distort the process of urbanization and industrialization. Land policy should be revised such that the market determines the allocation of land resources, which will create a unified, competitive urban–rural land market.
    Keywords: Urbanization; land policy; land leasing; land prices; hukou system
    JEL: H71 P26 R52
    Date: 2016–12–31
  7. By: Qichun, Zhang (Asian Development Bank Institute); Shufang, Li (Asian Development Bank Institute)
    Abstract: Fiscal decentralization has been established in the People’s Republic of China (PRC), but crises emerge at the local government level due to remaining problems of the fiscal administration system of tax allocation and the impact of replacing the business tax with a value added tax. The PRC taxation system requires readjustment and local governments have begun to focus on innovative financing models. The main path to stable and sustainable government finances is to maintain the general public budget and the government fund budget. We show that the use of innovative fundraising and financing channels will lead to the upgrading of local government infrastructure and public service. Suggestions for enhancing local government fiscal stability and sustainability include: reducing the fiscal burden at the local level by standardizing and legalizing outlay responsibilities at all government levels; forming a long-term fiscal growth mechanism by establishing a modern taxation system; establishing a standardized and predictable transfer payment system by introducing block transfer payments and prioritized transfer payments as a basis for a stable growth mechanism for general transfer payments; promoting public-private partnership legislation to encourage participation of social capital and maximize the multiplier effect of public expenditure; improving the mid-term budget and debt-annexed budget; and establishing a government planning mechanism for investment and debt financing of major infrastructure construction projects.
    Keywords: Local government; fiscal stability; fiscal sustainability; fiscal administration; China’s “new normal”
    JEL: E62
    Date: 2016–12–31
  8. By: Haiyan Ding; Hui He
    Abstract: This paper is the first comprehensive empirical study of earnings, income, and consumption inequality in urban China from 1986 to 2009, using unique micro-level data from the Urban Household Survey (UHS). The paper documents a drastic increase in economic inequality for the sample period. The paper finds that consumption inequality closely tracks income inequality, both over time and over the life cycle. The paper believes that the main driver of this co-movement could be a dramatic increase in noninsurable idiosyncratic permanent income shocks after the early 1990s, associated with the economic transition in urban China.
    Keywords: Income inequality;China;Income distribution;Consumption distribution;Household expenditures;Household survey data;Time series;Transition economies;Inequality over time and life-cycle; Income dynamics; Chinese economy; Structural transformation
    Date: 2016–12–12
  9. By: Wan, Guanghua (Asian Development Bank Institute); Wang, Chen (Asian Development Bank Institute); Zhang, Xun (Asian Development Bank Institute)
    Abstract: This study explores the relationship between inequality and structural transformation by constructing a theoretical model, developing analytical frameworks, and implementing a case study. The general equilibrium model we develop demonstrates that inequality exhibits an inverted U shape as structural change proceeds from onset to completion. Our analytical frameworks enable decomposition of total inequality into sector contributions and a change in total inequality into a component attributable to structural transformation and the other component to concentration or spatial agglomeration. Applying the decomposition frameworks to data from the People’s Republic of China yield various interesting findings and more importantly confirms the inverted U shape as predicted by our theoretical model.
    Keywords: Structural transformation; structural change; income distribution; income inequality; inequality decomposition; spatial agglomeration; macroeconomics; China; 不均等; 收入分配; 结构变化
    JEL: D63 O18 O53 R12
    Date: 2016–12–31
  10. By: Daniele Moschella; Federico Tamagni; Xiaodan Yu
    Abstract: This article investigates the characteristics of high-growth (HG) firms in Chinese manufacturing, and further explores the effects of firm characteristics on persistence of high-growth. We employ a multidimensional definition of HG firms that simultaneously accounts for growth of sales and employment. Exploiting a representative panel covering the period of the Chinaùs miracle, we find that HG firms outperform other firms, showing higher productivity, higher profitability, larger investment intensity, higher sales from product innovation, lower interest expenses and lower leverage. HG firms are also relatively young, larger in size, more often exporters and more concentrated in non-State-controlled companies. However, regression analysis suggests that none of the indicators of structural characteristics and performance considered above displays any statistical association with the ability to persistently replicate high-growth over time. The results speak against the long-run effectiveness of policies supporting the creation and backing of high-growth firms.
    Keywords: Entrepreneurship, Firm growth, High-growth firms, Persistent high-growth firms
    Date: 2017–09–01
  11. By: Hui He; Nan Li; Jing Fang
    Abstract: This paper examines whether the rapid growing firm patenting activity in China is associated with real economic outcome by building a unique dataset uniting detailed firm balance sheet information with firm patent data for the period of 1998-2007. We find strong evidence that within-firm increases in patent stock are associated with increases in firm size, exports, and more interestingly, total factor productivity and new product revenue share. Event studies using first-time patentees as the treatment group and non-patenting firms selected based on Propensity-Score Matching method as the control group also demonstrate similar effects following initial patent application. We also find that although state-owned enterprises (SOEs) on average have lower level of productivity and are less innovative compared to their non-state-owned peers, increases in patent stock tend to be associated with higher productivity growth among SOEs, especially for patents with lower innovative content. The latter could reflect the preferential government policies enjoyed by SOEs.
    Keywords: Technological innovation;China;Business enterprises;Public corporations;Innovation, Growth, Patent, R&D, Productivity, SOE Reforms, China
    Date: 2016–12–22
  12. By: Harahap, Berry (Asian Development Bank Institute); Bary, Pakasa (Asian Development Bank Institute); Panjaitan, Linda (Asian Development Bank Institute); Satyanugroho, Redianto (Asian Development Bank Institute)
    Abstract: This paper examines the impact of certain external shocks originating from the US and the PRC on Indonesia as a small open economy. The spillover effects of tapering off, an interest rate hike, exchange rate devaluation, and real gross domestic product (GDP) are analyzed. Two versions of the global vector autoregression model are employed, which covers 33 countries and considers both financial and trade relations among countries. Spillover assessments are conducted through impulse responses with 1,000 bootstrap replications, and compared to the responses of peer countries. The results suggest that the main risk for Indonesia’s real GDP is a shock to the PRC's real GDP, while a US interest rate hike is the greatest risk to Indonesia’s exchange rate depreciation in the short term, especially compared to the US tapering off. Moreover, the dominant transmission channel of US monetary tightening is through finance, dampening economic growth in small open economies.
    Keywords: Spillovers; small open economies; tapering off; interest rate hike; exchange rate devaluation; real GDP; US; PRC; Indonesia;
    JEL: C32 E17 F47
    Date: 2016–12–31
  13. By: Yongzheng Liu (School of Finance, China Financial Policy Research Center, Renmin University of China); James Alm (Department of Economics, Tulane University)
    Abstract: The central government of the People's Republic of China enacted a fiscal reform known as the "Province-Managing-County" (PMC) fiscal reform in the early 2000s. This reform eliminated the prefecture city government as the intermediate layer between the province and the county, and was intended largely to improve administrative efficiency and to lessen the fiscal stress of county governments. We apply a difference-in-difference method using a panel data set of 263 cities nationwide over the period of 1999-2011 to examine how the introduction of the PMC fiscal reform affects the economic growth of the cities. Our results show that on average implementing the PMC fiscal reform moderately increases city GDP growth by around 1 percentage point. We argue that this unexpected positive growth effect of the reform is induced by the expansion of land supply of the reformed cities, which in the post-reform period have faced the need to look for revenues outside the budget system, mainly extra-budgetary funds in the form of leasing land. Our analysis provides evidence on this argument, and reveals that the reformed cities tend to expand land leasing at a speed that is 14 percent higher than the non-reformed cities. Furthermore, we show that the impacts of the reform tend to be strengthened over time following the introduction of the reform. Our results are quite robust to alternative estimation methods.
    Keywords: Province-Managing-County Fiscal Reform, Land Lease, City GDP Growth, China.
    JEL: H11 H77 R11 R52
    Date: 2016–12

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