nep-cna New Economics Papers
on China
Issue of 2018‒01‒22
ten papers chosen by
Zheng Fang
Ohio State University

  1. The Effect of Air Pollution on Migration: Evidence from China By Shuai Chen; Paulina Oliva; Peng Zhang
  2. Agglomeration and Firm Wage Inequality: Evidence from China By Chen, Anping; Dai, Tianshi; Partridge, Mark
  3. The Rise and Fall of Local Elections in China: Theory and Empirical Evidence on the Autocrat's Trade-off By Monica Martinez-Bravo; Gerard Padró I Miquel; Nancy Qian; Yang Yao
  4. Some doubts about the economic analysis of the flow of silver to China in 1550-1820 By Jacques Melitz
  5. Policy Uncertainty and Foreign Direct Investment: Evidence from the China-Japan Island Dispute By Tatsuro Senga; Cheng Chen
  6. "Trust and Cooperation at a Confluence of Worlds: An Experiment in Xinjiang, China" By Zhe Zhang; Louis Putterman; Xu Zhang
  7. Diversification, economies of scope, and exports growth of Chinese firms By Mercedes Campi; Marco Due\~nas; Le Li; Huabin Wu
  8. Resolving China's Zombies: Tackling Debt and Raising Productivity By W. Raphael Lam; Alfred Schipke; Yuyan Tan; Zhibo Tan
  9. Reassessing the Perimeter of Government Accounts in China By Rui Mano; Phil Stokoe
  10. The ‘China Shock’, Exports and U.S. Employment: A Global Input-Output Analysis By Robert C. Feenstra; Akira Sasahara

  1. By: Shuai Chen; Paulina Oliva; Peng Zhang
    Abstract: This paper looks at the effects of air pollution on migration in China using changes in the average strength of thermal inversions over five-year periods as a source of exogenous variation for medium-run air pollution levels. Our findings suggest that air pollution is responsible for large changes in inflows and outflows of migration in China. More specifically, we find that independent changes in air pollution of the magnitude that occurred in China in the course of our study (between 1996 and 2010) are capable of reducing floating migration inflows by 50 percent and of reducing population through net outmigration by 5 percent in a given county. We find that these inflows are primarily driven by well educated people at the beginning of their professional careers, leading to substantial changes in the sociodemographic composition of the population and labor force of Chinese counties. Our results are robust to different specifications, including simple counts of inversions as instruments, different weather controls, and different forms of error variance.
    JEL: O15 Q53 Q56
    Date: 2017–11
  2. By: Chen, Anping; Dai, Tianshi; Partridge, Mark
    Abstract: China is experiencing rapid urbanization with the steady emergence of large cities, leading to policy discussions of the role of large cities in its development. While the consensus is that agglomeration plays an important role in economic development and large cities can act as engines of economic growth, there is relatively little empirical knowledge of the effects of agglomeration on inequality. In this study, we apply panel data from a micro firm-level survey and from city-level data to investigate whether there is a causal relationship between agglomeration and establishment wage dispersion in China. Given potential endogeneity of city size, we employ an instrumental variable regression (IV) approach. We find strong evidence that agglomeration has significant effects on wage dispersion in the short- and long-run. The link between agglomeration and wage dispersion is heterogeneous across regions. The spatially varying results appear to be due to different stages of development. Our results are consistent with two-sided sorting models in that it appears that the most productive and least productive firms are moving from inland cities to the coast.
    Keywords: Agglomeration, Wage Dispersion, City Size, Inequality, China
    JEL: R1
    Date: 2017–12–27
  3. By: Monica Martinez-Bravo; Gerard Padró I Miquel; Nancy Qian; Yang Yao
    Abstract: We propose a simple informational theory to explain why autocratic regimes introduce local elections. Because citizens have better information on local officials than the distant central government, delegation of authority via local elections improves selection and performance of local officials. However, local officials under elections have no incentive to implement unpopular centrally mandated policies. The model makes several predictions: i) elections pose a trade-off between performance and vertical control; ii) elections improve the selection of officials; and iii) an increase in bureaucratic capacity reduces the desirability of elections for the autocrat. To test (i) and (ii), we collect a large village-level panel dataset from rural China. Consistent with the model, we find that elections improve (weaken) the implementation of popular (unpopular) policies, and improve official selection. We provide a large body of qualitative and descriptive evidence to support (iii). In doing so, we shed light on why the Chinese government has systematically undermined village governments twenty years after they were introduced.
    JEL: O1 O2 P16
    Date: 2017–11
  4. By: Jacques Melitz (CREST; CEPII; CEPR)
    Abstract: The paper takes issue with the mainstream economic analysis of the enormous flow of silver into China in 1550-1820. First, I challenge the view that arbitrage between gold and silver in European trade with China was important except for one twenty-year spell. Next, I argue that had China imported gold, its history would have been much the same. I also dispute the idea that the persistence of the silver inflows from 1550 to 1820 implies any persistent disequilibrium, and I maintain that economic theory can easily accommodate the view that the inflow of silver into China sponsored growth in China.
    Keywords: silver flows into China 1550-1820; silver/gold exchange rates; transaction costs in international trade
    JEL: N1 N15 N25 F36
  5. By: Tatsuro Senga (Queen Mary University of London); Cheng Chen (University of Hong Kong)
    Abstract: Can a temporary uncertainty shock generate long-lasting effects on economic activities? To show causal evidence, we utilize data from Japanese multinational corporations (MNCs) and explore the economic impact of the unexpected escalation of an island dispute between China and Japan in 2012. Our difference-in-differences estimation substantiates that a sharp, but temporary fall in local sales of Japanese MNCs in China led to persistent downward deviation of foreign direct investment (FDI) from its trend. Moreover, despite the quick recovery of local sales, Japanese MNCs in China have continued to underestimate their local sales, which generates pessimistic and more dispersed forecast errors after the island crisis. We view this as evidence for a belief-driven channel through which a large and unexpected shock leads agents to revise their beliefs and start tail risk hedging.
    Date: 2017
  6. By: Zhe Zhang; Louis Putterman; Xu Zhang
    Abstract: We study trust and willingness to cooperate among and between Uyghur and Han college students in Xinjiang, China, where tensions exist between the two ethnic groups. We conduct an incentivized laboratory-style decision-making experiment in which within and between group interactions occur among identifiable participants without traceability of individual decisions. We find that members of each ethnicity show favoritism towards those of their own ethnicity in both trust and cooperation and that communication enhances inter- ethnic cooperation significantly. We also find that Uyghur and Han subjects behave differently in their willingness to cooperate relative to trust, although both trust and trustworthiness positively correlate with willingness to cooperate on the individual level.
    Date: 2018
  7. By: Mercedes Campi; Marco Due\~nas; Le Li; Huabin Wu
    Abstract: In the 1990s, China started a process of structural reforms and of trade liberalization, which was followed by the accession to the World Trade Organization (WTO) in 2001. In this paper, we analyze trade patterns of Chinese firms for the period 2000-2006, characterized by a notable increase in exports volumes. Theoretically, in a more open economy, firms are expected to move from the production of a set of less-competitive products towards more internationally competitive ones, which implies specialization. We study several stylized facts on the distribution of Chinese firms trade and growth rates, and we analyze whether firms have diversified or specialized their trade patterns between 2000 and 2006. We show that Chinese export patterns are very heterogeneous, that the volatility of growth rates depends on the level of exports, and that volatility is stronger after trade liberalization. Both, diversification in products and destinations have a positive impact on trade growth, but diversification of destinations has a stronger effect. We conclude that the success of Chinese exports is not only due to an increase in the intensive margin, related to the existence of economies of scale, but also due to an increase in the extensive margin, related to the existence of economies of scope.
    Date: 2018–01
  8. By: W. Raphael Lam; Alfred Schipke; Yuyan Tan; Zhibo Tan
    Abstract: Nonviable “zombie” firms have become a key concern in China. Using novel firm-level industrial survey data, this paper illustrates the central role of zombies and their strong linkages with stateowned enterprises (SOEs) in contributing to debt vulnerabilities and low productivity. As a group, zombie firms and SOEs account for an outsized share of corporate debt, contribute to much of the rise in debt, and face weak fundamentals. Empirical results also show that resolving these weak firms can generate significant gains of 0.7–1.2 percentage points in long-term growth per year. These results also shed light on the ongoing government strategy to tackle these issues by evaluating the effects of different restructuring options. In particular, deleveraging, reducing government subsidies, as well as operational restructuring through divestment and reducing redundancy have significant benefits in restoring corporate performance for zombie firms.
    Date: 2017–11–27
  9. By: Rui Mano; Phil Stokoe
    Abstract: China’s official general government accounts do not include off-budget quasi-fiscal spending unlike the IMF’s augmented government accounts. This paper argues that the broader concept of augmented government remains relevant despite recent positive measures to separate off-budget units from the government. In fact, new avenues to finance public infrastructure, such as Special Construction Funds and Government Guided Funds, have emerged and this paper re-defines the perimeter of augmented government to include them. Finally, concrete steps for improving China’s fiscal accounts are put forward. If these steps are taken, the perimeter of general government would expand relative to official statistics but would likely be narrower than where augmented aggregates place it.
    Date: 2017–12–08
  10. By: Robert C. Feenstra; Akira Sasahara
    Abstract: We quantify the impact on U.S. employment from imports and exports during 1995-2011, using the World Input-Output Database. We find that the growth in U.S. exports led to increased demand for 2 million jobs in manufacturing, 0.5 million in resource industries, and a remarkable 4.1 million jobs in services, totaling 6.6 million. One-third of those service sector jobs are due to the intermediate demand from merchandise (manufacturing and resource) exports, so the total labor demand gain due to merchandise exports was 3.7 million jobs. In comparison, U.S. merchandise imports from China led to reduced demand of 1.4 million jobs in manufacturing and 0.6 million in services (with small losses in resource industries), with total job losses of 2.0 million. It follows that the expansion in U.S. merchandise exports to the world relative to imports from China over 1995-2011 created net demand for about 1.7 million jobs. Comparing the growth of U.S. merchandise exports to merchandise imports from all countries, we find a fall in net labor demand due to trade, but comparing the growth of total U.S. exports to total imports from all countries, then there is a rise in net labor demand because of the growth in service exports.
    JEL: F14 O19
    Date: 2017–11

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