nep-cna New Economics Papers
on China
Issue of 2020‒10‒19
four papers chosen by
Zheng Fang
Ohio State University

  1. Can Superstition Create a Self-Fulfilling Prophecy? School Outcomes of Dragon Children of China By Mocan, Naci; Yu, Han
  2. Softening the blow: U.S. state-level banking deregulation and sectoral reallocation after the China trade shock By Mathias Hoffmann; Lilia Ruslanova
  3. Quantifying the U.S. Market Response to the African Swine Fever Outbreak in China By Pudenz, Christopher C.; Schulz, Lee L
  4. New-Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks By Andrés Rodríguez-Clare; Mauricio Ulate; José P. Vásquez

  1. By: Mocan, Naci (Louisiana State University); Yu, Han (Dalton State College)
    Abstract: In Chinese culture, those who are born in the year of the Dragon are believed to be destined for good fortune and greatness, and parents prefer their kids to be born in a Dragon year. Using provincial level panel data, we first show that the number of marriages goes up during the two years preceding a Dragon year and that births jump up in a Dragon year. Using three micro data sets from China we show that those born in a Dragon year are more likely to have a college education, and that they obtain higher scores at the university entrance exam. Similarly, Chinese middle school students have higher test scores if they are born in a Dragon year. We show that these results are not because of family background, student self-esteem or students' expectations about their future. We find, however, that the "Dragon" effect on test scores is eliminated when we account for parents' expectations about their children's educational and professional success. We find that parents of Dragon children have higher expectations for their children in comparison to other parents, and that they invest more heavily in their children in terms of time and money. We also show that girls are about six cm shorter than boys, but that this height disadvantage is cut by about half if a girl is born in the year of the Dragon and that effect is twice as strong in rural areas. Given that childhood nutrition is related to adolescent height, this suggests that parents may also be investing in Dragon girls in terms of nutrition. These results show that even though neither the Dragon children nor their families are inherently different from other children and families, the belief in the prophecy of success and the ensuing investment become self-fulfilling.
    Keywords: education, superstition, zodiac, investment, self-esteem, test score, dragon, China
    JEL: I2 J1 Z1
    Date: 2020–10
  2. By: Mathias Hoffmann; Lilia Ruslanova
    Abstract: U.S. state-level banking deregulation during the 1980’s mitigated the impact of the China trade shock (CTS) on local economies (states and commuting zones) a decade later, in the 1990s. Local economies, where local banking markets opened up earlier, were also effectively financially more integrated by the 1990’s and saw smaller declines in house prices, wages, and income following the CTS. We explain this pattern in a theoretical model that emphasizes the stabilizing effect of financial integration on demand for housing and on housing prices: faced with an adverse shock to their region’s terms-of-trade (i.e. the CTS), households in more open states can more easily access credit to smooth consumption. This stabilizes consumer demand for housing, keeps the relative price of housing up, stabilizes wages in the non-tradable sector and thus facilitates the sectoral reallocation of labor away from import-exposed manufacturing towards the housing sector. This in turn stabilizes income and consumption. We corroborate these predictions of our model in state- and commuting zone level data. Then, using granular bank-county-level data, we show that household consumption smoothing in response to the CTS was easier in financially open areas, because geographically diversified banks were more elastic in their lending response to household’s increased demand for credit. Our findings highlight the importance of household access to finance in the adjustment to asymmetric terms-of-trade shocks in monetary unions.
    Keywords: Banking deregulation, China trade shock, sectoral reallocation, house prices, consumer access to finance
    JEL: F16 F41 G18 G21 J20
    Date: 2020–09
  3. By: Pudenz, Christopher C.; Schulz, Lee L
    Abstract: China reported its first outbreak of African swine fever in August 2018. The devastation caused to the Chinese hog herd has had far-reaching implications for the international pork market. The protein deficit caused by the African swine fever outbreak in China and elsewhere in Southeast Asia continues to create opportunities for exporting countries to fill the void and provides openings for back-filling other partner country’s demand needs. At the same time, increased prevalence of ASF has fueled concerns regarding the spread into disease-free regions, including the United States. Given the position of both China and the United States in the international pork market, of interest is how the U.S. pork market has responded. A structural break test identifies up to five structural breaks in a constructed series of “year-out†implied volatilities calculated from CME lean hog options. We calculate changes in the market-perceived probability of a catastrophic price decrease occurring in the CME lean hog market, with results indicating that the probability has increased substantially. The average market-perceived probability of a 30% price decrease during August 27, 2018, to March 13, 2019, increased by 165% compared to the period November 11, 2017, to August 26, 2018. Hog producers, government entities, and allied industries could all leverage this information in many of their business decisions, risk analyses, and contingency planning.
    Date: 2020–01–01
  4. By: Andrés Rodríguez-Clare; Mauricio Ulate; José P. Vásquez
    Abstract: There is a growing empirical consensus that trade shocks can have important effects on unemployment and nonemployment across local-labor markets within an economy. This paper introduces downward nominal wage rigidity to an otherwise standard quantitative trade model and shows how this framework can generate changes in unemployment and nonemployment that match those uncovered by the empirical literature studying the “China shock.” We also compare the associated welfare effects predicted by this model with those in the model without unemployment. We find that the China shock leads to average welfare increases in most U.S. states, including many that experience unemployment during the transition. However, nominal rigidities reduce the overall U.S. gains from the China shock between one and two thirds. In addition, there are ten states that experience welfare losses in the presence of downward nominal wage rigidity but would have experienced welfare gains without it.
    JEL: F10 F16 F66
    Date: 2020–10

This nep-cna issue is ©2020 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.