nep-cna New Economics Papers
on China
Issue of 2019‒10‒07
nine papers chosen by
Zheng Fang
Ohio State University

  1. China’s Impact on Global Financial Markets By Isha Agarwal; Grace Weishi Gu; Eswar S. Prasad
  2. Demographic Aging, Industrial Policy, and Chinese Economic Growth By Michael Dotsey
  3. Determinants of Developing Countries' Export Upgrading: The Role of China and Productive Investment By Yue Teng; Dic Lo
  4. China and the World Bank - How Contrasting Development Approaches Affect the Stability of African States By Kai Gehring; Lennart C. Kaplan; Melvin H. L. Wong
  5. Depression in the House: The Effects of Household Air Pollution from Solid Fuel Use in China By Liu, Yan; Chen, Xi; Yan, Zhijun
  6. Corruption as Collateral By Min Ouyang; Shengxing Zhang
  7. A Bit of Salt, a Trace of Life: Gender Norms and the Impact of a Salt Iodization Program on Human Capital Formation of School Aged Children By Deng, Zichen; Lindeboom, Maarten
  8. The role of firm factors in demand, cost, and export market selection for Chinese footwear producers By Roberts, Mark J.; Yi Xu, Daniel; Fan, Xiaoyan; Zhang, Shengxing
  9. Law and Norms: Empirical Evidence By Tom Lane; Daniele Nosenzo

  1. By: Isha Agarwal; Grace Weishi Gu; Eswar S. Prasad
    Abstract: We analyze shifts in the structure of China’s capital outflows over the past decade. The composition of gross outflows has shifted from accumulation of foreign exchange reserves by the central bank to nonofficial outflows. Unlocking the enormous pool of domestic savings could have a significant impact on global financial markets as China continues to open up its capital account and as domestic investors look abroad for returns and diversification. We analyze in detail the allocation patterns of Chinese institutional investors (IIs), which constitute the main channel for foreign portfolio investment outflows. We find that, relative to benchmarks based on market capitalization, Chinese IIs underweight developed countries and high-tech sectors in their international portfolio allocations but overinvest in high-tech stocks in developed countries. To further examine Chinese IIs’ joint decisions on destination country-sector pairs, we construct continuous measures of revealed relative comparative advantage and disadvantage in a sector for a country based on trade patterns. We find that, in their foreign portfolio allocations, Chinese IIs overweight sectors in which China has a comparative disadvantage. Moreover, Chinese IIs concentrate such investments in countries that have higher relative comparative advantage in those sectors. Diversification and information advantages related to foreign imports to China seem to influence patterns of foreign portfolio allocations, while yield-seeking and learning motives do not.
    JEL: F2 F3 F4
    Date: 2019–09
  2. By: Michael Dotsey (Federal Reserve Bank of Philadelphia)
    Abstract: We examine the role of demographics and changing industrial policies in accounting for the rapid rise in household savings and in per capita output growth in China since the mid 1970s. The demographic changes come from reductions in the fertility rate and increases in the life expectancy, while the industrial policies take many forms. These policies cause important structural changes; first benefiting private labor-intensive firms by incentivizing them to increase their share of Chinese output, and later on benefiting capital-intensive firms resulting in an increase the share of capital devoted to heavy industries. We conduct our analysis in a general equilibrium economy that also features endogenous human capital investment. We calibrate the model to match key economic variables of the Chinese economy and show that demographic changes and industrial policies both contributed to increases in savings and output growth but with differing intensities and at different horizons. We further demonstrate the importance of endogenous human capital investment in accounting for the economic growth in China.
    Date: 2019
  3. By: Yue Teng (School of Social Sciences, University of Trento and University of Florence, Italy); Dic Lo (Department of Economics, SOAS University of London, UK)
    Abstract: This paper explores the determinants of developing countries' export upgrading measured by export sophistication. In particular, as a response to the recent debate on China's impact on developing countries' industrialisation, we examine a new hypothesis that the considerable growth in developing countries' trade with China may serve as a source of productive investment for their export upgrading. Dynamic panel estimations based on HS 6-digit export data on 62 developing countries during 1995-2014 show the positive effects of human capital, productive investment, and absolute gains from trade with China measured by income terms of trade vis-®§-vis China. Mediation analysis finds that the positive effect of trade with China on export upgrading takes effect largely through its enhancing effect on productive investment, which supports our hypothesis. By contrast, China's direct export-downgrading impact is minor. Our findings suggest that, for developing countries, China serves more as a stimulator of capital accumulation for industrial development than a competitor in manufacturing market or a predator of natural resources. This provides an alternative to the widespread argument of China's crowding-out and re-primarisation impact on developing countries. The priority for developing countries is therefore the appropriate use of the gains from trade for productive purposes.
    Keywords: export sophistication, developing countries, China, terms of trade, productive investment
    JEL: F14 O14 O19 O25
    Date: 2019–09
  4. By: Kai Gehring; Lennart C. Kaplan; Melvin H. L. Wong
    Abstract: China’s development model challenges the approaches of traditional Western donors like the World Bank. We argue that both aim at stability, but differ in the norms propagated to achieve that. Using fixed effects and IV estimations, we analyze a broad range of subnational stability measures in Africa. Aid by both the WB and China does not increase outright conflict nor any type of citizen protest, on average. Both even reduce outright conflict by governments against civilians. Still, Chinese aid is associated with more government repression and an increased acceptance of authoritarian norms, while WB projects strengthen democratic values.
    Keywords: development models, development aid, stability, conflict, repression, World Bank, China, Africa, geolocation
    JEL: H77 N90
    Date: 2019
  5. By: Liu, Yan; Chen, Xi; Yan, Zhijun
    Abstract: While adverse health effects of ambient air pollution have been well documented, there is scarce evidence on the impact of household air pollution (HAP) on mental health. We investigated the causal link between HAP exposure from the use of solid fuel on depressive symptoms using a nationally representative dataset of middle-aged and older population in China. Employing the propensity match score method (PSM), matching and adjusting for potential confounders, we found significantly higher Center for Epidemiological Studies Depression Scale (CES-D) score and risk of depressive symptoms among solid fuel users than clean fuel users. These associations were especially stronger for older females who were less educated, of lower income, of higher body mass index, or had chronic diseases.
    Keywords: Depression,Household solid fuel use,Household air pollution,Propensity Score Matching,CHARLS
    JEL: I31 Q51 Q53
    Date: 2019
  6. By: Min Ouyang (Tsinghua SEM); Shengxing Zhang (London School of Economics)
    Abstract: We explore the role of corruption in assisting finance, when conventional collateralized lending is limited in economies like China. We build an agency-friction theory, in which corruption helps the bank to overcome the soft-budget constraint and induce entrepreneurs to invest in high quality projects and repay their debts. When the anti-corruption campaign causes collateral damage on corruption-backed finance, banks' search for yields leads to alternative lending based on pledging physical asset or stock shares; accordingly, the price of physical assets and the amount of equity pledge rise. We examine Chinese data at the regional level and the firm level, and find evidence supporting our theory. We argue the anti-corruption campaign alone without further financial-market institutional reforms may hinder financial intermediation, giving rise to undesirable consequences.
    Date: 2019
  7. By: Deng, Zichen (affiliation not available); Lindeboom, Maarten (Vrije Universiteit Amsterdam)
    Abstract: This paper examines the effects of a massive salt iodization program on human capital formation of school-aged children in China. Exploiting province and time variation we find strong positive effects on cognition for girls and no effects for boys. For non-cognitive skills we find the opposite. We show in a simple model of parental investment that gender preferences can explain our findings. Analyses exploiting within province, village level variation in gender attitudes confirm the importance of parental gender preferences. Consequently, large scale programs can have positive (and possibly) unintended effects on gender equality in societies where boy preferences are important.
    Keywords: iodine, parental investments, gender attitudes, cognitive skills, non-cognitive skills
    JEL: I15 J16 J24
    Date: 2019–09
  8. By: Roberts, Mark J.; Yi Xu, Daniel; Fan, Xiaoyan; Zhang, Shengxing
    Abstract: In this article, we use micro data on both trade and production for a sample of large Chinese manufacturing firms in the footwear industry from 2002 to 2006 to estimate an empirical model of export demand, pricing, and market participation by destination market. We use the model to construct indexes of firm-level demand, marginal cost, and fixed cost. The empirical results indicate substantial firm heterogeneity in all three dimension with demand being the most dispersed. The firm-specific demand and marginal cost components account for over 30% of market share variation, 40% of sales variation, and over 50% of price variation among exporters. The fixed cost index is the primary factor explaining differences in the pattern of destination markets across firms. The estimates are used to analyse the supply reallocation following the removal of the quota on Chinese footwear exports to the EU. This led to a rapid restructuring of export supply sources on both the intensive and extensive margins in favour of firms with high demand and low fixed costs indexes, with marginal cost differences not being important.
    Keywords: demand; export market selection
    JEL: F14 L25
    Date: 2018–10–01
  9. By: Tom Lane (University of Nottingham Ningbo China); Daniele Nosenzo (University of Nottingham and Luxembourg Institute of Socio-Economic Research (LISER))
    Abstract: A large theoretical literature argues laws exert a causal effect on norms. This paper is the first to provide a clean empirical test of the proposition. Using an incentivized vignette experiment, we directly measure social norms relating to actions subject to legal thresholds. Results from three samples with around 800 subjects drawn from universities in the UK and China, and the UK general population, show laws often, but not always, influence norms. The strength of the effect varies across different scenarios, with some evidence that it is more powerful when law-breaking is more likely to be intentional and accurately measurable.
    Keywords: Social Norms; Law; Expressive Function of Law
    Date: 2019–08

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