nep-cna New Economics Papers
on China
Issue of 2017‒11‒05
fourteen papers chosen by
Zheng Fang
Ohio State University

  1. Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy By Harald Hau; Yi Huang; Gewei Wang
  2. Monetary policy transmission with two exchange rates and a single currency : The Chinese experience By Qing, He; Korhonen, Iikka; Zongxin, Qian
  3. China's Investment Rate: Implications and Prospects By Carsten A. Holz
  4. Network Effects on LaborContracts of Internal Migrants in China- A Spatial Autoregressive Model By Badi H. Baltagi; YingDeng; Xiangjun Ma
  5. All-Around Trade Liberalization and Firm-Level Employment: Theory and Evidence from China By Antonio Rodriguez-Lopez; Miaojie Yu
  6. Location or Hukou: What Most Limits Fertility of Urban Women in China? By Yun Liang and John Gibson
  7. The Porter Hypothesis Goes to China: Spatial Development, Environmental Regulation and Productivity. By Pedro Naso; Yi Huang Author Name: Tim Swanson
  8. Do Multinationals Transfer Culture? Evidence on Female Employment in China By Heiwai Tang; Yifan Zhang
  9. The Chaning Patterns of Investment in the PRC Economy By Carsten A. Holz
  10. Thinking about the Asian Infrastructure Investment Bank: Can a China-Led Development Bank Improve Sustainability in Asia? By Robert J. Hanlon
  11. Can Emerging Markets Tilt Global Product Design? Impacts of Chinese Colorism on Hollywood Castings By Hermosilla, Manuel; Gutierrez-Navratil, Fernanda; Prieto-Rodriguez, Juan
  12. Physical Capital Estimates for China's Provinces, 1952-2015 and Beyond By Carsten A. Holz; SUN Yue
  13. Determinants of Firm-Level Domestic Sales and Exports with Spillovers: Evidence from China By Badi H. Baltagi; Peter H. Egger; Michaela Kesina
  14. How Does Environmental Regulation Shape Economic Development? A Tax Competition Model of China. By Pedro Naso Author name: Tim Swanson

  1. By: Harald Hau; Yi Huang; Gewei Wang
    Abstract: The large regional variation in minimum wage levels in the period 2002-08 in China implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labor to capital, reduce employment growth and accelerate total factor productivity growth–particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labor cost shocks can be explained by differences in management practices, and suggests that management quality and competitive pressure are complementary.
    Keywords: firm productivity, capital investment, minimum wage policy
    JEL: D24 G31 J24 J31 O14
    Date: 2017
  2. By: Qing, He; Korhonen, Iikka; Zongxin, Qian
    Abstract: In emerging market economies, transmission of monetary policy through the foreign exchange market is complicated by the coexistence of financial restrictions and arbitrages. Using China as an example, we show that the coexistence of exchange rate interventions, capital controls and an on-shore-offshore exchange rate differential makes the long run equilibrium in the currency market nonlinear. Disturbances to this nonlinear long run equilibrium could offset the impact of monetary policy actions on domestic price stability. Omitting such nonlinearity leads to biased inference on the effectiveness of monetary policy.
    JEL: E52 F31 F40
    Date: 2017–10–21
  3. By: Carsten A. Holz
    Abstract: For the past nearly forty years, China has experienced average annual real GDP growth of close to ten percent, much of it driven by investment and capital accumulation. By 2014, gross capital formation had reached 46 percent of aggregate expenditures. This paper documents the role of investment in driving economic growth in China, questions how much longer China can sustain a relatively high investment rate, and examines the arguments that have been offered for an impending drastic reduction in investment. It also notes that investment in China remains broad-based across all economic sectors, with little specialization; the size of the Chinese economy may allow continued comprehensive development across all economic sectors. At the same time, the relative size of foreign investment in China has become negligible and the China growth story thus has become a domestic one.
    Keywords: investment rate, capital-output ratio, ICOR, national investment strategy, economic growth
    JEL: E01 E22 E60 O11 O53
    Date: 2017
  4. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); YingDeng (University of International Business and Economics); Xiangjun Ma (University of International Business and Economics)
    Abstract: This paper studies the fact that 37 percent of the internal migrants in China do not sign a labor contract with their employers, as revealed in a nationwide survey. These contract-free jobs pay lower hourly wages, require longer weekly work hours, and provide less insurance or on-the-job training than regular jobs with contracts. We find that the co-villager networks play an important role in a migrant’s decision on whether to accept such insecure and irregular jobs. By employing a comprehensive nationwide survey in 2011 in the spatial autoregressive logit model, we show that the common behavior of not signing contracts in the co-villager network increases the probability that a migrant accepts a contract-free job. We provide three possible explanations on how networks influence migrants’ contract decisions: job referral mechanism, limited information on contract benefits, and the "mini labor union" formed among co-villagers, which substitutes for a formal contract. In the sub-sample analysis, we also find that the effects are larger for migrants whose jobs were introduced by their covillagers, male migrants, migrants with rural Hukou, short-term migrants, and less educated migrants. The heterogeneous effects for migrants of different employer types, industries, and home provinces provide policy implications.
    Keywords: Contract, Co-Villager Network, Spatial Autoregressive Logit Model, Internal Migrants
    JEL: O15 R12 J14
    Date: 2017–09
  5. By: Antonio Rodriguez-Lopez; Miaojie Yu
    Abstract: Chinese firms faced an all-around trade liberalization process during the early 2000s: lower barriers from other countries on Chinese goods, and lower Chinese barriers on other countries’ goods and inputs. Using novel firm-level tariff data for trading Chinese manufacturing firms, this paper disentangles the effects of each type of trade liberalization on Chinese firm-level em-ployment. For each firm type, reductions in Chinese and foreign final-good tariffs are associated with job destruction in low-productivity firms and job creation in high-productivity firms. In contrast, the net effect of reductions in Chinese input tariffs is limited to job destruction in low-productivity ordinary exporters.
    Keywords: firm-level employment, firm-level tariffs, heterogeneous firms
    JEL: F12 F14 F16
    Date: 2017
  6. By: Yun Liang and John Gibson
    Abstract: China's fertility rate is below replacement level. The government is attempting to increase this rate by relaxing the one-child policy. China faces a possible tradeoff because further urbanization is needed to raise incomes but may reduce future fertility. We decompose China's rural–urban fertility gaps using both de facto and de jure criteria for defining the urban population. The fertility-depressing effects of holding urban hukou are more than three times larger than effects of urban residence. Less of the rural–urban fertility gap by hukou status is due to differences in characteristics than is the case for the fertility gap by place of residence.
    Keywords: fertility, hukou, urbanization, China
  7. By: Pedro Naso; Yi Huang Author Name: Tim Swanson
    Abstract: We examine the relationship between environmental regulation and competitiveness in China. Exploiting exogenous changes in national pollution standards for three industries—ammonia, paper and cement—we test whether environmental regulation increases industry productivity. Our results show that the strong version of the Porter hypothesis does not hold, but that regulation might reallocate productivity spatially. We show that regulated industries that are located in newly developing cities see an increase in their productivity as compared to the same industries in other cities. This means that environmental regulation is more likely to drive the spatial distribution of productivity changes than it is to drive the pace and direction of technological change.
    Keywords: Tax competition; Production Technology and Environment and Development
    JEL: H71 O13 Q56 D24
    Date: 2017–10–04
  8. By: Heiwai Tang; Yifan Zhang
    Abstract: We study the global diffusion of culture through multinationals, focusing on gender norms. Using data on manufacturing firms in China over 2004-2007, we find that foreign affiliates from countries with a more gender-equal culture tend to employ proportionally more women and appoint female managers. They also generate cultural spillovers, increasing domestic firms’ female labor shares in the same industry or city. Based on a multi-sector model with firm heterogeneity in productivity, gender biases, and learning, we perform counterfactual exercises. Hypothetically eliminating firms’ gender biases raises China’s aggregate total factor productivity by 5%, of which spillovers from multinationals account for 19%.
    Keywords: cultural spillover, gender inequality, FDI, misallocation
    JEL: F11 F21 J16 L22 O47
    Date: 2017
  9. By: Carsten A. Holz
    Abstract: The investment-intensive growth model of the People’s Republic of China (PRC) is often viewed as state-driven and ultimately unsustainable. But largely unnoticed, a shift has taken place. This paper examines the changes in investment patterns since 2003 and the potential impact of industrial policies on these patterns. The point of view is macroeconomic, based on economy-wide data with various breakdown. Significant shifts in investment patterns across sectors and ownership forms have occurred over time, supporting a new growth model with a reduced role of the state, and these shifts appear driven more by market factors than by government policies.
    Keywords: investment rate, investment policy, national investment strategy, sector distribution of investment, ownership distribution of investment, causes of investment, economic growth
    JEL: E22 E60 L52 O11 O25 O53
    Date: 2017
  10. By: Robert J. Hanlon
    Abstract: This article offers three arguments outlining the Asian Infrastructure Investment Bank's significance and to help policy planners navigate the complex relationship between China, the Bank and themes of sustainability. First, there is little uncertainty that China is serious about development and sustainability. The Asian Infrastructure Investment Bank is but one extension of China's increasing commitment to sustainability and should therefore be embraced by development stakeholders. Second, the Asian Infrastructure Investment Bank's commitment to infrastructure development complements other multilateral development banks and should not be considered a challenger to the existing order of development lending practices. Rather, China's interest in establishing the Asian Infrastructure Investment Bank points to competitive pluralism and poses no threat to the existing international order. Finally, the Asian Infrastructure Investment Bank's sustainability guidelines are not unique and fall in line with similar policy of other large development banks. The Asian Infrastructure Investment Bank therefore reinforces sustainability norms while posturing itself as a partner for development.
    Keywords: AIIB, China, multilateral development banks, sustainability, construction
    Date: 2017–07–11
  11. By: Hermosilla, Manuel; Gutierrez-Navratil, Fernanda; Prieto-Rodriguez, Juan
    Abstract: In various cultural and behavioral respects, emerging market consumers differ significantly from their counterparts of developed markets. They may thus derive consumption utility from different aspects of product meaning and functionality. Based on this premise, we investigate whether the economic rise of emerging markets may have begun to impact the typical “one-size-fits-all” design of many international product categories. Focusing on Hollywood films, and exploiting a recent relaxation of China’s foreign film importation policy, we provide evidence suggesting that these impacts may exist and be non-negligible. In particular, we show that the Chinese society’s aesthetic preference for lighter skin can be linked to the more frequent casting of pale-skinned stars in films targeting the Chinese market. Implications for the design of international products are drawn.
    Keywords: Emerging Markets, Hollywood, Culture, Product Design, Innovation, Skin Color
    JEL: L7 L70 M3 M31 O3 O30 Z1 Z11
    Date: 2017–09–30
  12. By: Carsten A. Holz; SUN Yue
    Abstract: Capital estimates are widely used in economic growth and productivity studies, for profitability considerations and wealth accounting exercises. Yet the calculation of “capital†frequently receives only cursory attention, despite the challenges posed by conceptual difficulties, the complexity of calculations, and the extensive data requirements. This paper (i) calculates long-run provincial (and national) physical capital series for China, (ii) distinguishes between capital services and wealth capital stock, and (iii) applies the most recent methodology advanced by the OECD, the U.S. Bureau of Labor Statistics, and the Australian Bureau of Statistics. The complete set of data is available online and is expected to be updated on an annual basis in the future.
    Keywords: capital services, wealth capital stock, capital concepts
    JEL: E01 E22 O11 O53
    Date: 2017
  13. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Peter H. Egger (ETH Zurice, CEPR, CESifo, GEP); Michaela Kesina (ETH Zurich)
    Abstract: This paper studies the determinants of firm-level revenues, as a measure of the performance of firms in China's domestic and export markets. The analysis of the determinants of the aforementioned outcomes calls for a mixed linear-nonlinear econometric approach. The paper proposes specifying a system of equations, which is inspired by Basmann's work and recent theoretical work in international economics and conducts comparative static analyses regarding the role of exogenous shocks to the system to flesh out the relative importance of transmissions across outcomes.
    Keywords: Spatial Econometrics, Spillovers, Panel-Data Econometrics, Nonlinear Systems, Firm- Level Sales, Chinese Firms
    JEL: C23 C31 D24 L65
    Date: 2017–09
  14. By: Pedro Naso Author name: Tim Swanson
    Abstract: We propose a novel theoretical framework to study how environmental regulation shapes economic development in a developing country such as China. We develop a dynamic tax competition model in which local governments, located in development zones, use variation in taxes to attract workers to their jurisdictions. Their objective is to maximize tax revenue less local health costs that are proportional to local pollution. Our main result is that competition generates a reallocation of productive factors when national regulation is introduced. Local governments in more productive regions set greater production taxes than in other regions. This makes workers and output to shift from more to less developed regions of the country.
    Keywords: Tax competition; Asymmetric tax competition; Environment and Development
    JEL: H71 H72 Q56 O13
    Date: 2017–10–05

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