nep-cna New Economics Papers
on China
Issue of 2017‒01‒29
thirteen papers chosen by
Zheng Fang
Ohio State University

  1. Land tenure policy and women’s off-farm employment in rural China By Hongqin Chang; Jing Liu; Yanyun Gao
  2. Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China By Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia
  3. Subsidizing Fuel Efficient Cars: Evidence from China's Automobile Industry By Chia-Wen Chen; Wei-Min Hu; Christopher R. Knittel
  4. Family Size and the Demand for Sex Selection: Evidence From China By Samuel Marden
  5. The agricultural roots of industrial development: ‘forward linkages’ in reform era China By Samuel Marden
  6. Why Geographic Dispersion Before Its Time: Industrial Policy and Economic Geography in the People’s Republic of China By Wu, Yiyun; Zhu, Xiwei
  8. The Impact of Monetary Policy on Agricultural Price Index in China: A FAVAR Approach By Tan, Ying; Sha, Wenbiao; Paudel, Krishna
  9. How Would a Slowdown in the People’s Republic of China Affect its Trading Partners? By Thorbecke, Willem
  10. Local Financial Development and constraints on private firms' exports: EvACidence from City Commercial Banks in China By Zhao Chen; Sandra Poncet; Ruixiang Xiong
  11. EU – China food trade perspectives By Kostadinov, Anton
  12. Infrastructure and Urbanization in the People’s Republic of China By Li, Zhigang
  13. Is the People’s Republic of China’s Current Slowdown a Cyclical Downturn or a Long-term Trend? A Productivity-Based Analysis By Bai, Chong–En; Zhang, Qiong

  1. By: Hongqin Chang; Jing Liu; Yanyun Gao
    Abstract: Using the data from three waves (1995, 2002 and 2008) of the Chinese Household Income Project (CHIP), which covers nine provinces in China, this paper investigates the impact of land tenure security on farmers’ labor market outcomes in rural China, especially for women’ s labor market behavior. To identify the effect of land tenure security, this paper used difference-in-differences strategy to control for time invariant heterogeneity, and a number of observed time-varying economic characteristics for its validity. The paper finds that in response to more security land rights, both women and men increase their probability of wage employment participation and individual income.
    Keywords: Land Tenure, off-farm, rural China
    JEL: O15 J61 Q15 R23
    Date: 2017
  2. By: Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia
    Abstract: We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture.
    JEL: O11 O14 O4
    Date: 2017–01
  3. By: Chia-Wen Chen; Wei-Min Hu; Christopher R. Knittel
    Abstract: The Chinese automobile market is the largest in the world with annual sales exceeding 20 million vehicles. The tremendous growth in sales---over 200 percent from 2008 to 2015---and concerns over local air quality have prompted China's policy makers to incentivize the adoption of more fuel efficient vehicles. We examine the response of vehicle purchase behavior to China's largest national subsidy program for fuel efficient vehicles during 2010 and 2011. Using variation from the program's eligibility cutoffs, we find that the program boosted sales for subsidized vehicle models, but that the program also created a substitution effect within highly fuel efficient vehicles and most subsidies went to inframarginal consumers. This substitution effect greatly reduces the cost effectiveness of the program. We calculate that the average cost per ton of carbon dioxide saved is over 82 USD, well above the social cost of carbon used in U.S. regulatory filings. Using the framework in Boomhower and Davis (2014) and accounting for local pollution benefits, we show that ignoring the substitution effect would lead one to conclude that the program is welfare enhancing, whereas in fact the marginal cost of the program exceeds the marginal benefit by almost as much as 300 percent. We also show that the program was not well-targeted; the effect of the subsidy on sales of fuel efficient vehicles was smaller in areas where consumers were more likely to purchase fuel inefficient models or were lower educated.
    JEL: L5 L91 Q4 Q5
    Date: 2017–01
  4. By: Samuel Marden (Department of Economics, University of Sussex)
    Abstract: In China, many fewer girls are born than would be expected given natural birth rates. This imbalance has worsened dramatically over the last 40 years. The roughly contemporaneous fall in fertility per woman is often mooted as a source of this apparent increased demand for sex selection: fewer births make it harder to have a son by chance. Despite this, causal evidence is limited. This paper exploits geographic variation in changes in fertility, arising as a consequence of China’s agricultural reforms (1978-84), to provide this evidence. Specifically, I show that households living in counties that benefitted more from the reforms, increased their fertility relative to households elsewhere. I then show that these households are also less likely to engage in sex selection. These changes appear to have been due to higher local incomes interacting with the enforcement of the One Child Policy. The timing of the changes in fertility and sex selection are informative: while fertility increased almost immediately, the decline in sex selection only emerged from the mid 1980s— contemporaneous with the widespread availability of ultrasound. These results suggest that the dramatic decline in fertility in 1970s China, as well as the smaller decline due to the One Child Policy in the 1980s, may have had an important role in fuelling the demand for sex selection.
    JEL: J11 J13 J16
    Date: 2016–03
  5. By: Samuel Marden (Department of Economics, University of Sussex)
    Abstract: A classic literature argues that improvements in agricultural productivity result in higher non-agricultural output, particularly at low levels of development. The proposed mechanisms for these ‘forward linkages’ centre on increases in the supply of factors—usually labour or capital—or demand externalities in product markets. Regardless of the mechanism, empirical evidence for substantial linkages from agriculture is limited. In this paper, I show that improvements in agricultural productivity were an important factor in the growth of the non-agricultural sector in early reform-era China. I obtain plausibly exogenous variation in agricultural productivity growth by exploiting the fact that reforms between 1978 and 1984 were more beneficial to farmers endowed with land suited to cash crops. Then, using a newly digitised panel of economic data for 561 counties, I trace the growth of agricultural and non-agricultural output over forty years. Over the 15 or 25 year periods following the reforms, I estimate elasticities of county level non-agricultural output with respect to agricultural output of 1.2 or 0.8. Several pieces of additional evidence indicate that the linkages identified were primarily due to higher agricultural surpluses increasing the supply of capital to local non-state firms.
    JEL: O11 O13 O43 P32
    Date: 2016–03
  6. By: Wu, Yiyun (Asian Development Bank Institute); Zhu, Xiwei (Asian Development Bank Institute)
    Abstract: We investigate the trends and determinants of geographic concentration and industrial specialization in the People’s Republic of China (PRC) using interprovincial panel data for the period from 1999 to 2010. It shows that, after 2005, both geographic concentration and industrial specialization began to decrease, resulting in an increased similarity of provincial industrial structure. Industrial policies of provincial governments cause geographic dispersion and inverse specialization. The result is robust when using instrumental variables to deal with possible reverse causality and omitted variable problems. The mechanism behind this is that central government industrial policy, which tends to last for several years, is an important reference document for each provincial planner. This causes the less-developed regions to deviate from their comparative advantages, resulting in a combination of insufficient geographic concentration and inverse specialization in the PRC.
    Keywords: geographic concentration; dispersal; industrial policy; specialization; local government; provincial government; economic geography
    JEL: L59 L60 R12
    Date: 2017–01–18
  7. By: Mendis, Sachintha; Hovhannisyan, Vardges
    Abstract: Food consumers in China have undergone significant changes in their food consumption patterns and have become more dependent on animal products for protein, while substituting fine grains for coarse grains. Considerable research effort has been devoted to this topic. A majority of these studies rely on the AIDS model, which has linear Engel and ignores unobserved consumer heterogeneity. We study food demand in China using the Exact Affine Stone Index (EASI) system. The EASI model not only shares all of the desirable properties of the AIDS model but also provides additional benefits. Specifically, it is not subject to the rank three limitation of Gorman (1981) and allows the Engel curves to take arbitrary shapes. Further, the EASI accounts for unobserved consumer heterogeneity. This is especially important in welfare studies conducted on consumer-level since much of the demand variation is left unexplained. Previous studies focus on changes in quantities, however we reveal that quality is also very important. Further, results confirm the prevalence of unobserved heterogeneity in consumer food preferences across provinces in China. By enhancing the findings of previous studies, this study elicits more realistic food preferences in China for agricultural policy, trade, and foreign direct investment decisions.
    Keywords: Demand for food quality, EASI demand model, food demand in China, Demand and Price Analysis, D11, D12,
    Date: 2017–01–18
  8. By: Tan, Ying; Sha, Wenbiao; Paudel, Krishna
    Abstract: We use recently available Chinese data from 2005m1 to 2016m2 to examine the impact of monetary policy on agricultural price using a factor-augmented vector autoregressive (FAVAR) model proposed by Bernanke et al. (2005). Results show the superiority of a FAVAR model with three variables and three factors over other specifications. Impulse response functions show that both money supply and interest rate have no impact on agricultural price in the long-run (beyond 50 months). However, results indicate the considerable short-run impact of monetary policy on agricultural price. According to forecasting error variance decompositions, the interest rate could account more for the fluctuations in agricultural price than the money supply.
    Keywords: Agricultural Price, FAVAR, Interest Rate, Money Supply, Demand and Price Analysis, Research Methods/ Statistical Methods, Q11, E69,
    Date: 2017–01–16
  9. By: Thorbecke, Willem (Asian Development Bank Institute)
    Abstract: The PRC has become an important importer for many countries. We investigate how turbulence in the PRC can spill over to trading partners through the trade channel. Exports from several East Asian and Southeast Asian countries to the PRC exceed 10% of their gross domestic products. To shed light on economies’ exposures to the PRC, this paper estimates a gravity model. The results indicate that Taipei,China and members of the Association of Southeast Asian Nations are exposed to the PRC because they produce goods for the PRC market and are exposed to advanced economies because they ship parts and components to the PRC for processing and reexport to the West. The Republic of Korea is more exposed to a slowdown in advanced economies that purchase processed exports from the PRC than to a slowdown in the PRC. Major commodity exporters such as Australia, Brazil, Indonesia, and Saudi Arabia, and exporters of sophisticated consumption and capital goods such as Germany and Switzerland are exposed to a slowdown in the PRC domestic market. This paper also estimates import elasticities for the PRC. The results indicate that imports for processing into the PRC are closely linked to processed exports from the PRC to the rest of the world and that ordinary imports are closely linked to PRC gross domestic product. The renminbi exerts only a weak impact on imports, however. The paper concludes by recommending that firms and countries diversify their export base and their trading partners to reduce their exposures to the PRC and to advanced economies.
    Keywords: PRC growth spillovers; gravity model; ordinary and processing trade; Asia
    JEL: F14 F22 F32
    Date: 2017–01–19
  10. By: Zhao Chen; Sandra Poncet; Ruixiang Xiong
    Abstract: We provide evidence that the development of city commercial banks (CCBs) across China has alleviated the restraining effect of China's domestic financial market inefficiency on the export activity of domestic private firms. Looking at the export behavior of 260 cities between 1997 and 2012 we confirm the well-established under-performance of domestic private firms in financially more vulnerable sectors compared to foreign affiliates in China. We show that a larger number of city commercial banks' branches raises domestic private firms' export disproportionately more in financially dependent sectors, so as to reduce the systematic disadvantage of domestic private firms over foreign-owned firms in export markets related to their greater financial exclusion. We however find that the private firms export performance has deteriorated relative to that of state-owned firms casting doubt on the capacity of development of CCBs to put an end to the systematic bias of lending in favor of the state sector.
    Keywords: City Commercial Banks;Local Fnancial Development;China;Financial Constraints;Export Performance
    JEL: F10 F14 F36 G32
    Date: 2016–12
  11. By: Kostadinov, Anton
    Abstract: China’s striving to ensure food security for its large population, and that problem I well known. In about one fifth of global population is living in China, in the same time should relay only 1/15 from rural land and 8% of fresh water. China’s population grows not only as a numbers, but also it is urbanizing in a large scale, the disposable incomes are also growing. It all means that food consuming pattern in China is also changing, and food consumption in the country will grow in both dimension – as a quantity and as a quality. EU – China trade relations are complicated and protectionism could be seen in both sides. EU have large trade deficits with China. The most member states have also large deficits, but not Germany and Finland. EU member states have very different positions about trade relations with China. In the food sector EU experiences overproduction, closed markets in Russian Federation, and internal market tensions. Furthermore, EU has placed a strong emphasis on speeding up Free trade agreements with so dynamic Asian countries, including China, but there are no plausible results yet.
    Keywords: China,EU food trade,food security
    JEL: F15 F42
    Date: 2017
  12. By: Li, Zhigang (Asian Development Bank Institute)
    Abstract: The recent experience of infrastructure investment in PRC suggests an intertwined relationship between investment, urbanization, and economic growth. In one mechanism, urbanization generates demand for infrastructure investment, which then drives economic growth via various channels including reducing transaction costs and raising productivity. Another mechanism emphasized in this paper is that infrastructure investment can promote urbanization through facilitating economic agglomeration toward hub cities. This agglomeration process also raises productivity in the economy. The lessons from the PRC have implications for infrastructure financing. On the one hand, recent reforms have allowed the market to play an increasingly important role in funding infrastructure investment, helping improve the efficiency of infrastructure investment and the productivity of the economy. On the other hand, evidence in the PRC suggests a cross-province spillover effect of road infrastructure, supporting the central government’s role in infrastructure financing. Although the current infrastructure investment system is still distorted by local governments’ incentives and decisions, there is no evidence of over-investment in infrastructure at the aggregate level. Nevertheless, there is strong evidence that the marginal return to infrastructure investment in the PRC has been rapidly declining. Hence, it is urgent for policy makers to reform the existing system to base their investment decisions on the economic returns to infrastructure. The interregional flow of goods and production factors (labor and capital) is a fundamental force that drives urbanization, but the market may not be efficient in financing and infrastructure construction. This paper analyzes infrastructure-related institutions and the interrelation between infrastructure and urbanization. It addresses the following issues: What is the relationship between infrastructure, growth, and urbanization? How efficient have investment and financing been for infrastructure construction? How can we evaluate the performance of infrastructure development? How and to what extent should the government be involved in infrastructure construction?
    Keywords: infrastructure; urbanization; infrastructure financing; development; construction; investment; economic growth
    JEL: H54 O18 R42
    Date: 2017–01–12
  13. By: Bai, Chong–En (Asian Development Bank Institute); Zhang, Qiong (Asian Development Bank Institute)
    Abstract: Whether the People’s Republic of China’s (PRC) economic slowdown since the 2008 financial crisis is a cyclical downturn or a long-run trend has important policy implications. Based on provincial panel data, we identify the determinants of productivity and uses counter-factual analysis to decompose the causes of the PRC’s post-crisis slowdown. We find that economic openness has a significantly positive impact on the technical efficiency of production, whereas the income level has a significantly negative effect. Second, a significantly negative correlation is observed between the stock of inventory and productivity, while the opposite is observed between employment involvement rate and productivity. Third, government size and investment rates both have significantly negative effects on productivity. Lastly, the diminishing late-mover advantage and the growth in investment rate are both major contributors to the current decline in the PRC’s productivity. Although the stimulus-induced investment surge has effectively offset the negative effects of the crisis on the PRC’s growth, it is not conducive to the growth of productivity and consumption. The current economic slowdown does not seem to be a cyclical downturn. Indeed, further reforms are needed to stabilize the PRC’s growth.
    Keywords: productivity; technical efficiency; utilization efficiency; allocative efficiency; counter-factual analysis
    JEL: E20 O47
    Date: 2017–01–19

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