nep-tra New Economics Papers
on Transition Economics
Issue of 2012‒11‒03
sixteen papers chosen by
J. David Brown
IZA (Institute for the Study of Labor)

  1. Strategies for Managing China's State-owned Foreign Direct Investment By Shuping Liao; Yongsheng Zhang
  2. Migration, Remittances and Rural Employment Patterns : Evidence from China By Sylvie Démurger; Li Shi
  3. The Brain Gain of Corporate Boards: A Natural Experiment from China By Giannetti, Mariassunta; Liao, Guanmin; Yu, Xiaoyun
  4. The rising Chinese pharmaceutical industry: local champions vs global players By Francesca Spigarelli
  5. Fiscal Incentives and Environmental Infrastructure in China By Liu, Antung Anthony; Zhang, Junjie
  6. The salient features and drivers of China’s outward foreign direct investment By Karl P. Sauvant; Victor Zitian Chen
  7. Industry and Ownership Structure of Chinese Overseas Direct Investment By Bijun WANG; Yiping HUANG
  8. Accounting for Labor Input in Chinese Industry, 1949-2009 By Harry WU; Ximing YUE
  9. Financial Deregulation, Absorptive Capability, Technology Diffusion and Growth: Evidence from Chinese Panel Data By Qichun He; Meng Sun; Heng-fu Zou
  10. Measuring Gross Output, Value Added, Employment and Labor Productivity of the Chinese Economy at Industry Level, 1987-2008 — An Introduction to the CIP Database (Round 1.0) By Harry WU
  11. Heterogeneous Beliefs, a Short-Sale Restriction, and the Cross Section of Stock Returns: An Evidence from China By Shin S. Ikeda; Yan Zhang
  12. Feedback to the ECB's monetary analysis: the Bank of Russia's experience with some key tools By Alexey Ponomarenko; Elena Vasilieva; Franziska Schobert
  13. Governance role of secondary shareholders : A study of Chinese outward foreign direct investment By Lin Cui
  14. Innovation Systes and Knowledge-Intensive Enterpreneurship: a Country Case Study of Poland By Richard Woodward; Elzbieta Wojnicka; Wojciech Pander
  15. Family Planning Policy in China: Measurement and Impact on Fertility By Wang, Fei
  16. Trends in China’s gender employment and pay gap: estimating gender pay gaps with employment selection By Chi, Wei; Li, Bo

  1. By: Shuping Liao (DEVELOPMENT RESEARCH CENTER); Yongsheng Zhang (STATE COUNCIL)
    Abstract: China‘s state-owned enterprises (SOEs) and their overseas investment have played an important role in China's economic development. Nonetheless, the rapid expansion of SOE-dominated overseas investment from China has also raised concerns about so-called state capitalism, and several Western countries have objected to some cases of overseas investment from China, proffering various excuses. Meanwhile, the urgent need for both domestic market-oriented reform and the transformation of China‘s development model has also raised new challenges for China‘s overseas investment pattern. Domestically, China's overseas investment should promote its economic growth and the transformation of its development model so as to best serve its national interest. Internationally, China's overseas investment should promote fair competition in the international markets, and make China's economic success a win-win situation with the rest of the world. These two objectives are internally consistent. This paper aims to examine China's overseas investment from these two perspectives, and subsequently propose recommendations on how to better manage China‘s SOE overseas investment.
    Keywords: China‘s overseas investment, state-owned enterprises, Chinese ODI, strategic adjustment, State-owned Foreign Direct Investment
    Date: 2012–10
  2. By: Sylvie Démurger (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Li Shi (School of Economics and Business Administration, Beijing Normal University, 19, Xinjiekouwai Dajie, Beijing 100875, China)
    Abstract: This paper explores the rural labor market impact of migration in China using crosssectional data on rural households for the year 2007. A switching probit model is used to estimate the impact of belonging to a migrant-sending household on the individual occupational choice categorized in four binary decisions : farm work, wage work, self-employment and housework. The paper then goes on to estimate how the impact of migration differs across different types of migrant households identified along two additional lines : remittances and migration history. Results show that individual occupational choice in rural China is responsive to migration, at both the individual and the family levels, but the impacts differ : individual migration experience favors subsequent local off-farm work, whereas at the family level, migration drives the left-behinds to farming rather than to off-farm activities. Our results also point to the interplay of various channels through which migration influences rural employment patterns.
    Keywords: labor migration, labor supply, remittances, temporary migration, left-behind, China
    JEL: O15 J22 R23 D13 O53
    Date: 2012
  3. By: Giannetti, Mariassunta; Liao, Guanmin; Yu, Xiaoyun
    Abstract: We study the impact of directors with foreign experience on firms in emerging markets. To establish causality, we use a unique dataset from China and exploit that at different times, Chinese provinces introduced policies to attract highly talented emigrants. These policies led to an exogenous increase in the supply of Chinese individuals with foreign experience in the local labor market and ultimately increased the likelihood that firms in these provinces had directors with foreign experience in comparison to firms with a similarly high demand for these skills elsewhere. We document that hiring directors with foreign experience results in higher firm valuation, productivity, and profitability. Furthermore, corporate governance improves and firms are more likely to make international acquisitions, to export, and to raise funds internationally. These results indicate that the transfer of knowledge to emerging markets occurs not only through foreign investment, but also through labor flows and, in particular, return migration.
    Keywords: corporate boards; corporate governance; firm performance; firm productivity; human capital
    JEL: D22 D80 F21 F22 G30 J24
    Date: 2012–10
  4. By: Francesca Spigarelli (Università degli Studi di Macerata)
    Abstract: This paper is an exploratory study on main features and challenges of the Chinese pharmaceutical market. Dramatic changes in the market are due both to the Government policies, changing consumer habits and behaviour, and to the growing competition at firm level. From a demand side perspective, consumptions of pharmaceutical products are booming thanks to a combined effect of economic growth, aging population, urbanization and health system reforms. Key forces shaping the demand are examined in the chapter, with a specific attention to health care reforms as well as to new habits and confidence of Chinese people towards the Western medicine. In this regard, import and export trends, consumption, and expected evolution of the market are examined. From a supply side perspective, two main trends can be highlighted: the increasing interest of foreign investors, and the effort of Chinese pharmaceutical firms to compete in the national market. To better understand the ongoing changes we look at market characteristics, key players, as well as trends and motivation of inward FDI to China are examined. On the basis of this general picture, the paper focuses on IP related aspects, to understand who are the main actors of patenting trends (foreign vs local firms) and for which kind of products patents are registered (raw materials vs basic products vs drugs). Analyzing patent trends and the role of Chinese vs Western firms, we try to define how China is taking its role and position into the national and – potentially - international pharmaceutical market.
    Keywords: China, pharmaceutical industry, patents
    JEL: F23 L65 O34
    Date: 2012–10
  5. By: Liu, Antung Anthony (Resources for the Future); Zhang, Junjie
    Abstract: This paper provides evidence that China's system of tax revenue sharing is an important explanation for differences in the rate of sewage treatment plant construction among its cities. As a result of the 1994 tax reform, Chinese cities retained different shares of their value-added tax (VAT). Exploiting the persistence of this sharing system, we use the VAT share in 1995 as an instrument for the present fiscal incentives. We find that a 10 percentage point increase in the VAT sharing rate resulted in a 13.8 percent increase in the construction of sewage treatment capacity. This result suggests that fiscal incentives can play an important role in the provision of pollution-reducing infrastructure.
    Keywords: sewage, water pollution, China pollution, fiscal federalism, tax sharing, tax federalism, China VAT sharing
    JEL: H4 H54 H77 Q53 Q56
    Date: 2012–09–21
  6. By: Karl P. Sauvant (Vale Columbia Center on Sustainable International Investment Columbia Law School – The Earth Institute Columbia University); Victor Zitian Chen
    Abstract: China has become the top emerging market outward investor, with no sign of a slowdown. Its outward foreign direct investment (OFDI) process has clear features : China’s OFDI predominantly comes from three major economic centers : the Yangtze River Delta, the Pearl River Delta and the Bohai Gulf; they primarily go to the Asian neighborhood, mostly Hong Kong, and into the tertiary sector. State-owned enterprises (SOEs), particularly the central ones, are the dominant players, with mergers and acquisitions (M&As) becoming the preferred mode of entry. To a large extent, these features are related to China’s unique institutional environment, where the government, through both regulation and support, plays a major role in OFDI activities, in the framework of its development strategy. China’s OFDI is driven primarily by the desire to support its exports, secure the supply of natural resources, acquire created assets such as technology and brands, service markets, and improve production efficiency (trough, e.g., cost reduction), as well as some special factors. This takes place in the framework of an FDI regulatory framework that has moved from restrictive, to liberal, to encouraging. However, China’s OFDI faces various challenges, especially political suspicions related to the dominant role of SOEs), local customers’ unfamiliarity with Chinese brands, a lack of local market knowledge, and cultural frictions. China and the host countries of the OFDI of her firms stand to gain from the rise of China’s OFDI, provided they take a dispassionate approach to its possible costs and benefits.
    Keywords: Chinese ODI, Chinese OFDI, distint features of Chinese ODI, Chinese SOEs and ODI, regulatory framework, major drivers of Chinese OFDI
    Date: 2012–10
  7. By: Bijun WANG (China Center for Economic Research); Yiping HUANG (Peking University)
    Abstract: We argue that the industry and ownership structure of Chinese ODI is firstly in-line with the country’s own industrial features and secondly mirrored in the investment motives behind. It is found that large Chinese investors are mainly driven by natural resource seeking and strategic assets seeking, while the SMEs are keen to facilitate Chinese exports. Nevertheless, we expect a different trend in future Chinese ODI as a result of both natural diversification process and the adaption to the transformation of Chinese economy. Key changes include but are not limited to : a much diversified ownership structure, targets and strategies; a decline of relative significance in resource investments; a more focus on consumption materials and needs; a larger weight in moving abroad industries China is losing comparative advantages; and more investments in lucrative services such as finance and insurance, healthcare and education, real estate and entertainment, construction and infrastructure building.
    Keywords: Chinese ODI, industry and ownership structure, SOEs, foreign direct investment
    Date: 2012–10
  8. By: Harry WU; Ximing YUE
    Abstract: Following the user cost theory on measuring labor input, after a careful scrutiny of available information, we construct employment and compensation matrices for China's industrial workforce over the period 1949-2009. Our measures are able to capture both individual and interactive effects of changes in gender, age, education, industry and ownership types of China's industrial workforce, and decompose the growth of labor input in Chinese industry into quantity and composition ("quality") effects. We find that the annual growth of the labor input in Chinese industry experienced a substantial decline from 6.9% per annum in the pre-reform period to 3.8% per annum in the post-reform period. Change of labor composition accounted for about 12% in the planning period (or 0.8% growth per annum), but it made little contribution during the reform period. We also find that the changes in industrial structure and age structure (reflecting the effects of seniority and experience) almost explained for the entire (positive) change in labor composition in the planning period. However, the change of education turned into negative after 1965 which made the average contribution of education negative in the planning period. Following the reform, education showed the most important contribution in the 1990s when the reform deepened, but the effect turned into negative again alongside China's entry into the World Trade Organization (WTO).
    Date: 2012–10
  9. By: Qichun He (CEMA, Central University of Finance and Economics); Meng Sun (SEBA, Beijing Normal University); Heng-fu Zou (Development Research Group, World Bank)
    Abstract: Technological diffusion via FDI is essential for the economic growth of backward economies. However, institutional and policy barriers may slow down technology diffusion. Using a simple theory based on Acemoglu (2009, ch. 18), we predict that there exists an interaction (i.e., a complementary) effect between inward FDI (pool of available world frontier technologies) and financial deregulation (enhancing absorptive capability via lowering institutional and policy barriers) in promoting growth. We test the predictions using the panel data on Chinese provinces during the reform and opening-up period. The Chinese experience is appealing because of the symbiotic financial deregulation and inflow of FDI. We find robust evidence that there is a significant interaction effect between FDI and the level of financial deregulation in promoting economic growth. This furthers our understanding of the reform and opening-up strategy of China.
    Keywords: Absorptive Capability, Gradual Financial Deregulation, Inward FDI, Interaction, Panel Data
    JEL: O11 O33 F43 C23
    Date: 2012
  10. By: Harry WU
    Abstract: This paper introduces the preliminary version of the China Industrial Productivity Database (CIP Round 1.0), a first of its kind covering the period 1987-2008, including data problems and the construction procedures to deal with the problems. It also discusses the outstanding methodological and data issues aiming to invite constructive comments and suggestions for further improvement of the database. Finally, using the CIP data, this paper provides a preliminary measure of China's labor productivity at industry level and individual industries' contributions to and labor reallocation effect on the aggregate labor productivity growth of the economy. Our preliminary findings show that there was nearly a fourfold growth (383%) in the labor productivity of the Chinese economy over the period 1987-2008, or an increase of 6.6% per annum. The top two performers were post-and-telecommunication service and transportation equipment manufacturing, experiencing an annual growth of labor productivity by 16.3% and 15.1%, respectively. However, that health care (11.0% p.a.) and government service (9.7% p.a.) also fell in the "super labor-productivity-growth club" raises a serious question about potential data problems because the labor productivity growth of these sectors is typically low or close to zero by international experiences. China gained from the labor reallocation effect alongside the state sector reform beginning in the early 1990s. But the effect turned into negative following the Asian financial crisis in 1997-98 and maintained that status in the aftermath deflationary macroeconomic environment (1998-2001). The labor reallocation effect became positive again after China's entry into the World Trade Organization (WTO) (2002-08).
    Date: 2012–10
  11. By: Shin S. Ikeda (National Graduate Institute for Policy Studies); Yan Zhang (National Graduate Institute for Policy Studies)
    Abstract: We find a negative cross-sectional relation between heterogeneous beliefs and future stock returns in China, where short sale is prohibited in our sample period. Compared to other empirical works, which often be done in a market without short sale prohibition, we obtain this strong negative results after controlling several characteristics of stocks, such as size, leverage, book to market ratio and momentum. This negative relationship supports theoretical conjecture on heterogeneous beliefs (Miller(1977)). Our heterogeneous beliefs proxy is unexplained turnover, which is turnover of individual stocks adjusted by market turnover and its momentum. We also control the liquidity and idiosyncratic uncertainty in the robust test. These two factors are often attributed to the reason of the negative relation between turnover and future returns.
    Date: 2012–10
  12. By: Alexey Ponomarenko (Bank of Russia); Elena Vasilieva (Bank of Russia); Franziska Schobert (Deutsche Bundesbank)
    Abstract: The paper investigates to what extent some basic tools of the ECBs monetary analysis can be useful for other central banks given their specific institutional, economic and financial environment. We take the case of the Bank of Russia in order to show how to adjust methods and techniques of monetary analysis for an economy that differs from the euro area as regards, for instance, the role of the exchange rate, the impact of dollarization and the functioning of sovereign wealth funds. A special focus of the analysis is the estimation of money demand functions for different monetary aggregates. The results suggest that there are stable relationships with respect to income and wealth and to a lesser extent to uncertainty variables and opportunity costs. Furthermore, the analysis also delivers preliminary results of the information content of money for inflation and for real economic development. JEL Classification: E41, E52, E58
    Keywords: Money demand, transition countries, cointegration analysis, inflation, real economic activity
    Date: 2012–09
    Abstract: This study examines the effects of institutional and foreign ownership on the outward foreign direct investment (FDI) of Chinese firms. Based on agency theory and the resource-based view, we argue that secondary shareholders, i.e., institutional and foreign shareholders, are active and effective governance forces in Chinese firms. They promote and support Chinese firms to engage in outward FDI through their monitoring and resource roles. Their governance effect, however, may be hindered by the power of CEOs as a result of principalprincipal conflicts. Our empirical study of 224 Chinese listed firms revealed that institutional and foreign ownership is positively associated with the outward FDI propensity of Chinese firms. The positive relationship between institutional ownership and outward FDI propensity weakens when CEO power increases. There was, however, no support for the moderating effect of CEO power on the relationship between foreign ownership and outward FDI propensity.
    Keywords: Chinese firms, Agency Theory, Foreign Ownership, Institutional Ownership, Outward foreign direct investment, Resource-based View, Chinese ODI
    Date: 2012–10
  14. By: Richard Woodward; Elzbieta Wojnicka; Wojciech Pander
    Abstract: This study surveys the current state of affairs in Poland with regard to the development of knowledge-intensive entrepreneurship (KIE), or new firm creation in industries considered to be science-based or to use research and development (R&D) intensively. We place KIE in Poland in the larger institutional context, outlining the key features of the country’s National Innovation System, and then focus on KIE itself. Our findings are perhaps more optimistic than many previous studies of knowledge-based economy development in Poland. We observe significant progress due to Polish access to the European Union. The frequency with which universities are playing a significant role as partners for firms in the innovation process has increased significantly; moreover, we observe a significant degree of internationalization of innovation-related cooperation. Another optimistic development is that the level of activity of venture capitalists seems to be fairly high in Poland considering the relatively low degree of development of capital markets offering VC investors exit opportunities. Moreover, after almost two decades of decline in the share of R&D spending in GDP, there are signs that this is beginning to rise, and that businesses are beginning to spend more on R&D. While demand-side problems continue to be significant barriers for the development of KIE, due to the relatively low level of education and GDP per capita in the country, the trends here are optimistic, with high rates of economic growth and improvements in the level of education of younger generations. Significant improvement is still needed in the area of intellectual property protection.
    Keywords: Knowledge-Based Economy, Entrepreneurship, Transition, Post-Communist, SMEs, Poland
    JEL: L26 O31 O52 P27
    Date: 2012–10
  15. By: Wang, Fei
    Abstract: The extent to which China's family planning policy has driven its fertility transition over the past decades is debatable. The disagreement is partly sourced from the different ways of measuring the policy. Most existing measures, constructed on the policy history, generally, do not include complete secular and cross-sectional policy variations, fail to heterogeneously reflect people's exposure to the policy, and often suffer from endogeneity. This paper reviews the entire history of China's family planning policy and accordingly, proposes a new policy measure that integrates the policy variations more completely, heterogeneously, and exogenously by using the cross-sectional data of the China Health and Nutrition Survey. The new measure estimates the effect of policy on fertility and generates negative regression coefficients that well reproduce the history. As for the contribution of the policy to fertility transition, the measure explains a sizable level shift of fertility for major cohorts, but only accounts for a small portion of the fertility decline over generations. In addition, a more-educated woman, a woman residing in a better-developed coastal province, or a woman whose first child is a son tends to desire fewer children and thus, receives lighter pressure from the policy. Other than fertility, a woman would delay her marriage in response to the policy, particularly when it is strongly enforced. Finally, the paper shows that using an incomplete measure could systematically underestimate the effect of policy on fertility and adopting an endogenous measure or a measure lacking heterogeneity could even produce a positive effect of the policy.
    Keywords: Family Planning Policy; Fertility; China
    JEL: J13 O22 J18
    Date: 2012–10–21
  16. By: Chi, Wei; Li, Bo
    Abstract: In contrast to the United States and European countries, China has witnessed a widening gender pay gap in the past two decades. Nevertheless, the size of the gender pay gap could still be underestimated as a result of not accounting for the low-wage women who have dropped out of the labor force. As shown by a large and representative set of household survey data in China, since the 1980s the female employment rate has been falling and the gap between male and female employment rates has been increasing. We estimate the bounds of the raw gender pay gap in China, taking into consideration the different male and female employment rates. To tighten the bounds, we use an instrumental variable, having a child aged less than 6 years. The results support the view that the raw gender pay gap, as large as it has been, is still underestimated.
    Keywords: Gender pay gap; gender employment gap; bounds; instrumental variable
    JEL: J3
    Date: 2012–10

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