nep-sea New Economics Papers
on South East Asia
Issue of 2017‒06‒04
twenty-two papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Review Ekonomi Pertekstilan dan Pengembangan Rami di Indonesia By Setyo-Budi, Untung; mhd, Subandi; R, Agung
  2. How important are SOEs and MNEs in Vietnam’s economy? By Ramstetter, Eric D.
  3. What is the link between financial development and income inequality? evidence from Malaysia By Ahmed, Azleen Rosemy; Masih, Mansur
  4. Impacts of export-platform FDI on backward linkages - Do third country size, trade agreements and heterogeneity of firms matter? Evidence from the Vietnamese supporting industries By Nguyen-Huu, Thanh Tam; Nguyen-Khac, Minh
  5. Do Islamic banks lead or lag conventional banks? Evidence from Malaysia By Nor, Amirudin Mohd; Masih, Mansur
  6. Revisit Feldstein-Horioka puzzle: evidence from Malaysia (1960-2015) By Razak, Lutfi Abdul; Masih, Mansur
  7. The resource curse reloaded: revisiting the Dutch disease with economic complexity analysis By Camargo, Jhean Steffan Martines de; Gala, Paulo
  8. Impact of political instability on foreign direct investment and Economic Growth: Evidence from Malaysia By Nazeer, Abdul Malik; Masih, Mansur
  9. Examen du cadre public de promotion et de commercialisation du tourisme By OCDE
  10. Convergence of public and private enterprise wages in a transition economy: Evidence from a distributional decomposition in Vietnam, 2002–2014 By VU, Tien Manh
  11. Trade, Education, Governance and Distance: Impact on Technology Diffusion and Productivity Growth in Asia and LAC By Schiff, Maurice; Wang, Yanling
  12. Determinants of profitability of takaful operators: new evidence from Malaysia based on dynamic GMM approach By Hodori, Arif; Masih, Mansur
  13. Distributional preferences and donation behavior among marine resource users in Wakatobi, Indonesia By Nelson, Katherine M.; Schlüter, Achim; Vance, Colin
  14. Risk, Resilience & Sustainable Growth: U.S. Monetary Policy in a Post-Recovery Era By Williams, John C.
  15. Is inflation targeting the proper monetary policy regime in a dual banking system? new evidence from ARDL bounds test By Ndiaye, Ndeye Djiba; Masih, Mansur
  16. The Impact of Domestic Investment on Economic Growth: New Evidence from Malaysia By Bakari, Sayef
  17. Quality Upgrading and the Stages of Diversification By Papageorgiou, Chris; Perez-Sebastian, Fidel; Spatafora, Nikola
  18. Upstart Industrialization and Exports, Japan 1880-1910 By Christopher M. Meissner; John P. Tang
  19. The Impact of Monetary Policy on Economic Development: Evidence from Lao PDR By srithilat, khaysy; Sun, Gang
  20. Re-Opening the Silk Road to Transform Chinese Trade By Ning Mao; Michael McAleer
  21. Human capital, energy, and economic development – Evidence from Chinese provincial data By Fang, Zheng; Chen, Yang
  22. Electricity consumption, Education Expenditure and Economic Growth in Chinese Cities By Fang, Zheng; Chen, Yang

  1. By: Setyo-Budi, Untung; mhd, Subandi; R, Agung
    Abstract: The economic turmoils started in 1997 had affected Indonesian textile industry and the textile product industries. Many factories had sent their workers home due to their difficulty to import cotton fibre as raw material. Indonesian production of cotton is just less than 4 % of industry requirement.Textile and textile product industry had contributed to national economic considerably and employment. Most Indonesian regions are not suitable for cotton. An experiment was conducted to detect water stress in Bandung, andhad been conducted in ( Bandung, Sumedang, Majalengka) 2000-2001, 2002 and 2007, the latest experiment in 2015.Response: physiological (leaf chlorophyll contents, leaf relative water content), growth and yields (number of stem, length of stem, diameter of stem, fine fibreweight,and fine fibre diameter)There were found that ramie plant is robust plant. Nitrogen and potassium are important nutrients for growth and better fibre quality. Textile industry and the product of textile industry contributed to the national revenue second only the the revenue from gas and petroleum. .
    Keywords: Key words : Economic, industry, ramie, textile.
    JEL: Q5
    Date: 2017–04
  2. By: Ramstetter, Eric D.
    Abstract: This paper examines patterns and changes of shares of the state sector, including stateowned enterprises (SOEs) and other state entities, and foreign multinational enterprises (MNEs) in Vietnam since the mid-1990s. Because most Vietnamese are still self-employed or household workers with little or no connection to the state sector or MNEs, it is important to exclude the household sector from these comparisons. First, ownership shares vary markedly among economic activities. For example, economy-wide estimates indicate that MNEs and state sector have both been relatively small employers, but larger producers. MNEs have also become by far the largest exporters. Second, ownership shares and their trends vary substantially depending on the data source. Most conspicuously, SOE shares of nonhousehold enterprise employment and sales have decreased rapidly since 2000. On the other hand, economy-wide estimates of state shares in non-household employment and GDP declined much more slowly. Recent discrepancies between these estimates have become so large that they almost certainly result from errors in one or more data sources. There are also smaller discrepancies between corresponding, alternative estimates of MNE shares. The extent of privatization of SOEs and its economic effects are thus ambiguous in Vietnam, creating important concerns for academics and policy makers.
    Keywords: Multinational enterprises, state-owned enterprises, ownership, employment, production, exports, Multinational enterprises, state-owned enterprises, ownership, employment, production, exports, F14, F23, L33, L60, L81, O53
    Date: 2017–03
  3. By: Ahmed, Azleen Rosemy; Masih, Mansur
    Abstract: This paper studies the long run relationship between financial development and income inequality in Malaysia over the period of 1970-2007. For the last 45 years, Malaysian income inequality has been decreasing from a height of 0.56 (Gini coefficient) in 1976 to 0.4 in 2014 while its economy and financial sector especially the banking industry has been expanding. The issue of importance is to investigate whether in a developing economy, the financial sector plays a role in reducing income inequality by mobilising and allocating savings into productive investments. We have employed the auto regressive distributed lag (ARDL) bound testing approach and the error correction mechanism to examine the existence of long run relationship, while variance decomposition (VDC) technique is used to provide Granger causal relationship between the variables. The cointegration tests show that there is a long run relationship between financial development, economic growth, trade openness and income inequality in Malaysia. However, financial development itself is found to be not statistically significant in influencing income inequality during the sample period. This finding is similar to Law & Tan’s (2009) findings over a shorter period 1980-2000. However, the VDC finds that financial development can be a tool for the government to employ to reduce income inequality. This paper also provides evidence that trade openness helps reduce income inequality. In terms of policy, enhancing financial access that would steer the development of financial system towards a pro-growth and pro-poor direction is needed to ensure that financial development fully supports the reduction of income inequality in Malaysia.
    Keywords: Financial development, income inequality, Malaysia, ARDL
    JEL: C58 E44 G15
    Date: 2017–05–11
  4. By: Nguyen-Huu, Thanh Tam; Nguyen-Khac, Minh
    Abstract: The paper investigates the impacts of export-platform foreign direct investment (FDI) on backward linkages. First, in a three-country model, these impacts are explained through the competition effect and the demand effect. Whenever the former is stronger than the latter, the investment has a negative impact on the level of backward linkages and conversely. Otherwise, the level of backward linkages is also affected by third country size, local content requirement, and the power of trade agreements between the host and the third countries. Second, in the case of the Vietnamese supporting industries between 2000 and 2012, export-platform FDI generates a negative effect. Moreover, local content requirement, and trade agreements between Vietnam and third countries (bilateral trade agreement with the U.S. and entry of Vietnam into the WTO) positively impact the level of backward linkages whereas third country size has an ambiguous impact.
    Keywords: export-platform FDI,backward linkages,local content requirement,third country size,power of trade agreements,Vietnam
    JEL: F15 F23 O1
    Date: 2017
  5. By: Nor, Amirudin Mohd; Masih, Mansur
    Abstract: This paper explores the causal relationship between Islamic banks’ non-performing financing (NPF) and conventional banks’ non-performing loans (NPL) for the banking industry in Malaysia. To further understand these asset quality variables, we added domestic macroeconomic variables namely domestic credit, real lending rate and exchange rate for the period January 2007 to January 2017. Using time series cointegrating VAR models, coupled with the Long Run Structural Modelling (LRSM), Vector Error Correction Model (VECM) and Variance Decompositions (VDC), the results tend to suggest that NPF leads NPL. Contrary to expectation, the VDC results suggest that NPF and NPL variables are leading and lagging respectively. This unexpected result gives rise to many interesting arguments especially within the Islamic banking perspectives. Apart from providing important insights into the causality between NPF and NPL, our results contribute to the policy implications. Interest rate variable being the most leading variable may be used to affect both NPFs and NPLs.
    Keywords: non-performing financing, non-performing loans, causality, LRSM
    JEL: C58 E44 G21
    Date: 2017–05–11
  6. By: Razak, Lutfi Abdul; Masih, Mansur
    Abstract: This paper revisits the Feldstein-Horioka puzzle – the mother of all puzzles – to uncover whether there exists a long-run relationship between domestic investment and domestic savings for the case of Malaysia. This is a long-standing empirical puzzle in macroeconomics which contradicts economic theory: for open economies, savings should be able to flow to where investment returns are most attractive, and hence there should be no correlation between investment and savings. One plausible reason put forth in the literature as an explanation for the puzzle is the reduction in trade frictions. As trade frictions are reduced, capital becomes more mobile, which in turn would mitigate the Feldstein-Horioka puzzle. Using an ARDL framework, we seek to investigate whether trade openness, as a proxy for reduced trade frictions, can help explain the long-run relationship between savings and investment. Although we discover mixed evidence with regards to the role of trade openness, we find that more importantly, the results tend to indicate the presence of possible structural break. Nevertheless, the results from our paper imply that policymakers can set the savings rate as an intermediate target to affect investment and real income.
    Keywords: Feldstein-Horioka puzzle, Malaysia, ARDL
    JEL: C58 E44 G15
    Date: 2017–05–10
  7. By: Camargo, Jhean Steffan Martines de; Gala, Paulo
    Abstract: This paper shows that the Dutch disease can be more formally characterised as low economic complexity using ECI-type indicators; there is a solid and robust inverse relationship between exports concentrating on natural resources and economic complexity as measured by complexity indicators for a database of 122 countries from 1963 to 2013. In a large majority of cases, oil answers for shares in excess of 50% of exports. In addition to empirical panel analysis, we address case studies concerned with Indonesia and Nigeria and introduce a brief review of the theoretical literature on the topic. Indonesia is considered in the literature as a good example in avoiding the negative effects of the Dutch disease, whereas Nigeria is taken as a bad example in terms of institutions and policies adopted during the seventies and eighties. The empirical results show that complexity analysis and Big Data may offer significant contributions to the still-current debate surrounding the Dutch disease.
    Date: 2017–03–13
  8. By: Nazeer, Abdul Malik; Masih, Mansur
    Abstract: Based on many studies, economic theories and real life experiences, we can understand that political instability has been a harmful factor that would hinder the flow of FDI and the growth of an economy. In our study, we would like to focus on Malaysia, which had its fair share of political instability issues due to the differences and existence of various races. But based on recent studies, it is considered a politically stable economy. Despite everything, Malaysia has been able to achieve consistent economic growth, therefore we believe Malaysia is an interesting country to explore further. This paper aims to analyze the impact of political instability on foreign direct investment and on economic growth of Malaysia. This study employs autoregressive distributed lag (ARDL) approach to cointegration proposed by Pesaran et al. (2001). It is based on a time series data over the period of 30 years ranging from 1984 to 2013. There has been no studies identified yet to our knowledge which has investigated the causal relationships between political instability, FDI and economic growth for Malaysia. Our study aims to fill this gap in literature and would be of great use for the policy makers and key decision makers of the economy. The empirical results reveal that there are both long and short run relationship between political instability, FDI and economic growth in Malaysia, with economic growth being the strongest driver for political instability and FDI. These findings have clear policy implications in that the government of Malaysia can make use of it by targeting the growth in the economy to impact FDI and political instability.
    Keywords: political instability, foreign direct investment, economic growth, Malaysia, ARDL
    JEL: C58 E44 G15
    Date: 2017–05–12
  9. By: OCDE
    Abstract: L’essor de l'économie touristique se heurte à des difficultés liées non seulement à la situation économique mondiale, à la baisse des budgets, aux taux de change fluctuants, mais aussi à des bouleversements économiques et technologiques tendanciels plus profonds, sources de turbulences supplémentaires sur le marché. Plusieurs pays étudient donc de nouveaux modèles, notamment des stratégies numériques, permettant de relier la politique du tourisme, la commercialisation du tourisme et le développement des produits. Le rapport examine certains des défis auxquels sont actuellement confrontées les autorités publiques responsables de la commercialisation et de la promotion du tourisme, ainsi que les perspectives offertes dans ce domaine, pour ce qui est de la recherche de nouvelles sources de financement, des possibilités de partenariat, des stratégies de promotion et des systèmes de gouvernance. Ce rapport a bénéficié d'importantes contributions et apports de 16 pays: Afrique du Sud, Australie, Danemark, Estonie, Finlande, France, Islande, Israël, Italie, Lettonie, Philippines, Pologne, Portugal, Royaume-Uni, Slovénie, et Suède. Les études de cas sur les pays offrent des exemples d'initiatives prises par les pouvoirs publics et les entreprises pour relever ces défis.
    Date: 2017–05–25
  10. By: VU, Tien Manh
    Abstract: We examine the transition of state-owned enterprises (SOEs) in Vietnam from a wageperspective by decomposing the difference in wage distributions between SOE mployees and non-SOE employees during the period 2002–2014. In 2002, SOE employees enjoyed higher pay than non-SOE employees owing to characteristics difference and any factors other than either the price of skills or the characteristics difference, so-called residuals difference. University graduates were the main contributor to the endowments difference. However, we found that SOE pay schemes converged with those of non-SOEs by 2014, in terms of both the price of skills and residuals.
    Keywords: Wage, wage decomposition, wage distribution, state-owned enterprises, transition, Vietnam, Wage, wage decomposition, wage distribution, state-owned enterprises, transition, Vietnam, J30, J45, O15, P31
    Date: 2017–04
  11. By: Schiff, Maurice; Wang, Yanling
    Abstract: This paper examines the impact of North-South trade, education, governance and North-South distance, on technology diffusion and total factor productivity (TFP) growth in the South, focusing on LAC and East Asia over the 32 years before the Great Recession (1976-2007). Findings are: i) TFP rises with education, trade, governance (ETG) and imports’ R&D content, and falls with distance to the North; ii) an increase of LAC’s ETG to East Asia’s levels raises TFP by 165%, fully accounting for its TFP gap with East Asia; iii) the impact of the education gap equals the sum of the governance and openness gaps; and iv) South America’s loss of TFP relative to Mexico associated with its greater distance to US-Canada (both Europe and Japan) is 9.3 (0) percent.
    Keywords: Trade,Governance,Education,Distance,Technology Diffusion,Productivity growth
    JEL: F22 J61
    Date: 2017
  12. By: Hodori, Arif; Masih, Mansur
    Abstract: Takaful or Islamic Insurance is a branch of Islamic Finance that is frequently overlooked, with a very few empirical studies done in the field. In Malaysia, Takaful’s asset base had grown from just RM$1.4 million in 1986 to RM$23 billion in 2014. Despite this significant growth, there has been very few empirical studies done in the field, especially on the determinants of Takaful operators’ profitability. Motivated by this, this paper aims to investigate the determinants of profitability of Takaful operators by using the dynamic GMM estimator. This study finds that Takaful operators’ size and age are significant determinants of its profitability. However, there are various limitations and challenges that this paper faced, especially on data availability which forced us to resort to manually extracting the data from the financial statements of the companies from their websites at a heavy cost of time and effort. This indicates the attention, work and effort that researchers in the field of Islamic Finance should give to this relatively unexplored field as deeper understanding of this field is crucial for supporting its growth and innovation.
    Keywords: Islamic insurance, profitability, Malaysia, dynamic GMM
    JEL: C58 E44 G15
    Date: 2017–05–10
  13. By: Nelson, Katherine M.; Schlüter, Achim; Vance, Colin
    Abstract: This study examines the effect of participants' distributional preferences on donations of money and time using a field experiment with marine resource users in Indonesia. Individuals participate in a real effort task to earn money and are faced with a donation decision under different treatments - monetary donation, time donation, monetary match, and time match. In the distributional preferences elicitation we classify individuals' preferences as benevolent, egalitarian, own-money-maximizing, and spiteful. We find that the different distributional preference types are a significant indicator of participants' donation behavior. The people showing spiteful preferences and those that focus only on maximizing their own payoff are less likely to donate any amount compared to those that make egalitarian choices. Furthermore, we find strong evidence that individuals that choose payoff structures characterized as "benevolent" donate a significantly higher amount compared to the egalitarian types. We analyze the results econometrically in two-stages to better understand the determining factors for whether an individual donates and those factors that determine how much one donates. Practical implications involve the segmentation of the target audience, not by the type of charity but by the mechanism which motivates their donation behavior.
    Keywords: distributional preferences,donations,field experiment
    JEL: Q22 Z1
    Date: 2017
  14. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to the Symposium on Asian Banking and Finance, Singapore, Singapore , by John C. Williams, President and CEO, Federal Reserve Bank of San Francisco, May 29, 2017.
    Date: 2017–05–31
  15. By: Ndiaye, Ndeye Djiba; Masih, Mansur
    Abstract: This paper explores the appropriateness and consequently the feasibility of inflation targeting in an economy with a dual financial system. We take the case of Malaysia, an example of a successful coexistence of the conventional and Islamic systems. The study employs ARDL bounds testing approach to investigate the long run relationship between inflation rate, real effective exchange rate, statutory reserve rate, narrow money, Islamic interbank rate and the overnight policy of Malaysia, considering the major transmission mechanism channels in the conduct of monetary policy stance. An Error Correction Model (ECM) is used to capture the short run dynamics, and variance decomposition of forecast errors is used to determine the causality direction of the variables. The periods considered was monthly data from the June 2007 to February 2017. Our results show that there is a long and short term relationship between inflation, narrow money, statutory reserve rate, real effective exchange rate and the Islamic interbank rate. However, we suggest that Inflation targeting may not be ideal in a dual banking system, especially the case of Malaysia. Alternatively, interest rate targeting is found to be most effective. Additionally, it will give the central bank more control over the Islamic segment of the financial system.
    Keywords: Dual Banking, Islamic Banking, Interest rate, Inflation Targeting, Islamic Profit rate, Monetary Policy, ARDL
    JEL: C58 E44 G15
    Date: 2017–05–12
  16. By: Bakari, Sayef
    Abstract: This paper investigates the relationship between domestic investment and economic growth in Malaysia. In order to achieve this purpose, annual data for the periods between 1960 and 2015 was tested by using Correlation analysis, Johansen co-integration analysis of Vector Error Correction Model and the Granger-Causality tests. According to the result of the analysis, it was determined that there is a positive effect of domestic investment, exports and labors on economic growth in the long run term, however, there is no relationship between domestic investment and economic growth in the short run term. These results provide en evidence that domestic investment, exports and labors are seen as a source of economic growth in Malaysia
    Keywords: Domestic Investment, Economic Growth, Correlation, Cointegration, VECM and Causality, Malaysia.
    JEL: E2 E22 O47
    Date: 2017–01–01
  17. By: Papageorgiou, Chris; Perez-Sebastian, Fidel; Spatafora, Nikola
    Abstract: This paper explores the contribution of product quality upgrading in the process of export diversification. To do this, the paper builds a multisector model following Eaton and Kortum (2002) in which product quality is incorporated as a key feature. The model is then calibrated to generate predictions about the degree of export diversification in a number of East Asian countries. It is shown that quality upgrading is a key factor to understand the changes in the degree of export diversification in the majority of countries in our sample.
    Keywords: export diversification, product quality, international trade, structural transformation.
    JEL: F10 O14 O40
    Date: 2016–12–16
  18. By: Christopher M. Meissner; John P. Tang
    Abstract: Japanese exports between 1880 and 1910 increased massively in volume, changed composition, and shifted away from leading industrialized countries toward poorer Asian neighbors. The product mix also varied with the level of development of the destination, with new products and specializations more likely to ship to less developed regional economies. Using a new disaggregated data set of the bilateral-product level exports for the universe of Japanese trade partners, we find that changes in various extensive margins (new markets, new goods) account for over 30 percent of export growth over this period. Determinants of initial entry include trade costs and market size. Products started in a small number of markets and accumulated additional destinations building on earlier successes. Subsequent entry was also influenced by product-level characteristics interacting with destination-specific characteristics. We confirm that export growth for “new” products was stronger in LDCs than in advanced economies, but the latter still claimed a larger share of overall trade growth. There is little evidence that Japan exported low quality manufactured goods to new, low-income destinations. Instead, reductions in trade costs helped Japan augment market share. Exit is relatively rare but appears to be determined by market-specific demand-side effects and product-specific factors.
    Keywords: market entry, extensive margin, intensive margin, first wave of globalization, export diversification
    Date: 2017–05
  19. By: srithilat, khaysy; Sun, Gang
    Abstract: This paper examines the impact of monetary policy on the economic development by using annual time series data from 1989-2016. The unit root testing result suggests that all variables are stationary at first difference; therefore, the Johansen Cointegration and Error Correction Model has been employed to analyze the association between variables. The finding shows that money supply, interest rate, and inflation rate negatively effect on the real GDP per capita in the long run and only the real exchange rate has a positive sign. The error correction model result indicates the existence of short-run causality between money supply, real exchange rate and real GDP per capita.
    Keywords: monetary policy, economic development, laos, VECM, cointegration.
    JEL: E52
    Date: 2017–02–17
  20. By: Ning Mao (Dhurakij Pundit University, Bangkok, Thailand); Michael McAleer (National Tsing Hua University, Taiwan; University of Sydney Business School, Australia; Erasmus School of Economics, Erasmus University Rotterdam, and Tinbergen Institute, The Netherlands; Complutense University of Madrid, Spain and Yokohama National Univ)
    Abstract: Under anti-globalization and isolationism, China is seeking to portray itself as a new leader for globalization under the banner of the Silk Road initiative. Meanwhile, China’s traditional and comparatively advantaged industry, silk, has faced dire predicaments and challenges for long time, and needs a transformation in terms of initiatives. Throughout history, the prosperity arising from silk was supposed to represent a microcosm of Chinese society. This paper searches the breakthrough point to improve the current dilemma of Chinese silk enterprises; uses a Case Study for inductive reasoning that is feasible for marketing strategies; and provides a strategy to help Chinese silk enterprises to transform their market positioning and operating modes to obtain better development opportunities. The paper also analyzes the new external environment based on the “One Belt, One Road” principle, which is of crucial importance for the implementation of new marketing strategies.
    Keywords: China; Silk; Company Strategy; National Strategy; Transformation; Chinese Trade
    JEL: O24 P33 Q27
    Date: 2017–05–22
  21. By: Fang, Zheng (School of Business, SIM University, Singapore); Chen, Yang (Division of Economics, Xi'an Jiaotong-Liverpool University)
    Abstract: This paper investigates the cointegration and Granger causal relationship between economic growth and total energy consumption as well as disaggregate energy such as coal, coke, crude oil, petroleum products, natural gas and electricity in China for a period of 1995-2014. Different from limited existing provincial studies on China, we use a multivariate framework that considers per capita human capital on top of physical capital in the neoclassical production function and advanced panel econometric methodologies that allow for cross-sectional dependence. Our results suggest that human capital exerts 2-3 times the effect of physical capital on the economy and energy also plays a significant role. Furthermore, the rich bootstrap panel Granger causality test results for both the panel and individual provinces provide substantial insights and suggest that it is important to examine the causal effects of both the total energy use and various disaggregate energy consumption before local governments make specific energy and economic policies.
    Keywords: energy-growth nexus, human capital, cross-sectional dependence, China
    Date: 2017–05–24
  22. By: Fang, Zheng (School of Business, SIM University, Singapore); Chen, Yang (Division of Economics, Xi'an Jiaotong-Liverpool University)
    Abstract: We examine the city-level cointegrating and Granger causal relationships between economic growth, electricity consumption and human capital during a period of 2003-2012 in China. Applying the Continuously-updated fully modified OLS panel estimation, we find that for China as a whole physical and human capital have similar positive impacts on local economic growth, which are slightly larger than the effect of electricity consumption. A 1% rise in either physical or human capital investment boosts economic growth by 0.07% and the output elasticity of electricity consumption is 0.06. Comparatively, electricity consumption plays a dominant role to boost economic growth in the Center, human capital contributes most to growth in the East, and growth in the West benefits most from physical capital investments. Using a Granger causality test that is suitable for heterogeneous panels, we find a uni-directional causal relationship running from economic growth to electricity consumption in central and western China and a feedback effect in eastern China. In terms of the causal relationship between electricity consumption and education expenditure, electricity Granger causes education expenditure in some eastern Chinese cities and a reverse relationship is observed for cities in Middle China, while for western cities a bi-directional causal link is found. Local policies should therefore vary and be coordinated across government agencies.
    Keywords: Electricity consumption, education expenditure, heterogeneous panel causality, Chinese cities
    Date: 2017–05–24

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