nep-cna New Economics Papers
on China
Issue of 2017‒10‒29
eight papers chosen by
Zheng Fang
Ohio State University

  1. Educational Choice, Rural-urban Migration and Economic Development By Pei-Ju Liao; Ping Wang; Yin-Chi Wang; Chong Kee Yip
  2. Dynamic Trade, Endogenous Institutions and the Colonization of Hong Kong: A Staged Development Framework By T. Terry Cheung; Theodore Palivos; Ping Wang; Yin-Chi Wang; Chong K. Yip
  3. Technological catching-up, sales dynamics and employment growth: evidence from China's manufacturing firms By Giovanni Dosi; Xiaodan Yu
  4. Firm Innovation under Import Competition from Low-Wage Countries By Ujjayant Chakravorty; Runjuan Liu; Ruotao Tang
  5. Unequal household carbon footprints in China By Dominik Wiedenhofer; Dabo Guan; Zhu Liu; Jing Meng; Zhang, Ning; Wei, Yi-Ming
  6. The Price of Growth: Consumption Insurance in China 1989-2009 By Raül Santaeulàlia-Llopis; Yu Zheng
  7. Vertical Fiscal Imbalance and Local Fiscal Discipline: Empirical Evidence from China By Junxue Jia; Yongzheng Liu; Jorge Martinez-Vazquez; Kewei Zhang
  8. The Future of Money: Liquidity co-movement between financial institutions and real estate firms: evidence from China By Sheng Huang; Jonathan Williams; Ru Xie

  1. By: Pei-Ju Liao; Ping Wang; Yin-Chi Wang; Chong Kee Yip
    Abstract: Observing rapid structural transformation accompanied by a continual process of rural to urban migration in many developing countries, we construct a micro founded dynamic framework to explore how important education-based migration is, as opposed to work-based migration, for economic development, urbanization and city workforce composition. We then calibrate our model to fit the data from China over the period from 1980 to 2007, a developing economy featuring not only large migration flows but major institutional reforms that may affect work and education based migration differently. We find that, although education-based migration only amounts to one-fifth of that of work-based migration, its contribution to the enhancement of per capita output is larger than that of work-based migration. Moreover, the abolishment of the government job assignment for college graduates and the relaxation of the work-based migration have limited effects on economic development and urbanization. Furthermore, the increase in college admission selectivity for rural students plays a crucial but negative role in China's development, lowering per capita output and worsening the high-skilled employment share in urban areas.
    JEL: O15 O53 R23 R28
    Date: 2017–10
  2. By: T. Terry Cheung; Theodore Palivos; Ping Wang; Yin-Chi Wang; Chong K. Yip
    Abstract: To explore the interplays between trade and institutions, we construct a staged development framework with multi-period discrete choices to study the colonization of Hong Kong, which served to facilitate the trade of several agricultural and manufactured products, including opium, between Britain and China. Based on the historical data and documents that we collected from limited sources, we design our dynamic trade model to capture several key features of the colonization process and use it to characterize the endogenous transition from the pre-Opium War era, to the post-Opium War era and then to the post-opium trade era, which span the period 1773-1933. We show that while the low opium trading cost and the high warfare cost initially postponed any military action, the high valuation of the total volume of bilateral trade, the rising opium trading cost and the anticipated increase in the demand for opium eventually led the British government to declare the Opium Wars, legalizing opium trade via the colonial Hong Kong. We also show that, in response to a drastic drop in opium demand and a rising opium trading cost, it became optimal for the British government to abandon opium trade soon after the founding of the Republic of China.
    JEL: E02 E65 F54 O11
    Date: 2017–10
  3. By: Giovanni Dosi; Xiaodan Yu
    Abstract: This paper investigates the microeconomics of employment dynamics, using a Chinese manufacturing firm-level dataset over the period 1998-2007. It does so in the light of a scheme of "circular and cumulative causation", whereby firms' heterogeneous productivity gains and sales dynamics, and innovation activities ultimately shape the patterns of employment dynamics. Using firm's productivity growth as a proxy for process innovation, our results show that the latter correlates negatively with firm-level employment growth. Conversely, relative productivity levels, as such a general proxy for the broad technological advantages/disadvantages of each firm, do show positive effect on employment growth in the long-run through replicator-type dynamics. Moreover, firm-level demand dynamics play a significant role in driving employment growth, which more than compensate the labour-saving effect due to technological progress. Finally, and somewhat puzzlingly, the direct effects of product innovation and patenting activities on employment growth appear to be negligible.
    Keywords: Employment Growth, Demand, Product Innovation, Process Innovation, Export, China catching-up
    Date: 2017–10–24
  4. By: Ujjayant Chakravorty; Runjuan Liu; Ruotao Tang
    Abstract: In recent years, manufacturing firms in the United States have faced increasing import competition from low-wage countries, especially China. Does this competition hurt or help innovation by firms? This paper studies the effect of the surge in imports from China on innovation in the US manufacturing sector. We combine patent, firm and trade data during 1990-2006 for US publicly-listed firms in the Compustat dataset. We find consistent evidence that Chinese import competition had a positive effect on firm innovation, as measured by citation-weighted patent applications. This positive effect persists when we instrument import competition in the US by using Chinese import penetration in the United Kingdom. Next we investigate this relationship between import competition and innovation by considering industry and firm heterogeneity. We find that firms in low-tech industries and those with a lower degree of product differentiation show a significant positive response to import competition. Firms with a higher capital intensity and lower labor productivity also exhibit a greater response. These results are shown to be robust to a variety of measures for import penetration and innovation.
    Keywords: import competition, innovation, international trade, manufacturing firms, patents
    JEL: F10 F14 O31 O32
    Date: 2017
  5. By: Dominik Wiedenhofer; Dabo Guan; Zhu Liu; Jing Meng; Zhang, Ning; Wei, Yi-Ming
  6. By: Raül Santaeulàlia-Llopis; Yu Zheng
    Abstract: We exploit a novel and unique opportunity to document the transmission of income risks to consumption in a growing economy. Our laboratory is China, an economy that has witnessed enormous and sustained growth and for which we build a long panel of household-level consumption and income. We find that consumption insurance deteriorates along the growth process with a transmission of permanent income shocks to consumption that at least triples from 1989 to 2009. Although preliminary, our calculations suggest that the loss of consumption insurance has implications for the welfare assessment of economic growth.
    Keywords: economic growth, income risk, consumption insurance, China
    JEL: O11 O12 E21
    Date: 2017–10
  7. By: Junxue Jia (Renmin University of China); Yongzheng Liu (School of Finance, Renmin University of China); Jorge Martinez-Vazquez (Department of Economics, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University); Kewei Zhang (Boston University)
    Abstract: Using a nationwide city-level panel dataset for China for the years 1999-2009, this paper examines the effects of vertical fiscal imbalances (VFI) on local fiscal discipline, and explicitly explores the institutional conditions under which these effects may take place. We find that higher VFI levels induce fiscal indiscipline by reducing tax effort of local governments. We exploit the unique Chinese fiscal institution of assigning taxing power for local taxes and shared taxes to two separate authorities (i.e., the local tax bureau and the central tax bureau, respectively) in several ways. We show that local governments respond to the presence of the VFI by lowering their tax effort on local taxes, but do not do so for shared taxes. In addition, we show that the (in)disciplining effect of the VFI is not present for extra-budgetary revenues, which reflects the institutional fact that extra-budgetary revenues are not considered for the determination of central fiscal transfers to local governments, thus creating no incentive for local governments to respond in this area.
    Date: 2017–10
  8. By: Sheng Huang (Bangor University); Jonathan Williams (Bangor University); Ru Xie (Bangor University)
    Abstract: The possibility of liquidity risk interdependence between financial institutions and real estate firms raises concern over financial stability. Changes in real estate liquidity conditions reflecting credit risks could increase bank liquidity risk due to untimely loan repayment. Liquidity risks can be amplified if liquidity shortfalls are not resolved. Using data from China from 2000 to 2014, and using three liquidity indicators to measure the impact of market capacity (liquidity depth), transaction costs (liquidity tightness) and market efficiency (liquidity resilience), a first result shows commonality or a two-way loop in liquidity risks between financial institutions and real estate firms. A second result indicates a positive and long run effect of the liquidity resilience of real estate firms on financial institutions. Liquidity risk transmission becomes prominent during episodes of market distress.
    Date: 2017–09

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