nep-tra New Economics Papers
on Transition Economics
Issue of 2015‒04‒25
fifteen papers chosen by
J. David Brown
United States Census Bureau

  1. Local Government Debt and Economic Growth in China By Yanrui Wu
  2. An adaptive approach to forecasting three key macroeconomic variables for transitional China By Niu, Linlin; Xua , Xiu; Chen , Ying
  3. An Increase in the Retirement Age in China: The Regional Economic Effects By Anping Chen; Nicolaas Groenewold
  4. Financial Integration and China's Global Impact By Rod Tyers
  5. Banking structure, marketization and small business development: Regional evidence from China By Hasan, Iftekhar; Kobeissi , Nada; Wang, Haizhi; Zhou , Mingming
  6. Ethnic Complementarities after the Opening of China: How Chinese Graduate Students Affected the Productivity of Their Advisors By George J. Borjas; Kirk B. Doran; Ying Shen
  7. Regional Disparity of Embedded Carbon Footprint and its Sources in China: A Consumption Perspective By Jin Fan; Yanrui Wu; Xiumei Guo; Dingtao Zhao; Dora Marinova
  8. Explaining the International Mobility of Chinese Workers, 1992-2012 By ZHANG Hongyong
  9. Does social class affect nutrition knowledge and food preferences among Chinese urban adults ? By BONNEFOND Céline; CLEMENT Matthieu
  10. Benefit Incidence with Incentive Effects, Measurement Errors and Latent Heterogeneity: A Case Study for China By Martin Ravallion; Shaohua Chen
  11. China and Global Macroeconomic Interdependence By Rod Tyers
  12. How Did Household Indebtedness Hamper Consumption during the Recession? Evidence from Micro Data By Merike Kukk
  13. EU Cohesion Policy Funding in Estonia: Background, Developments and Challenges By Karin Kondor-Tabun; Karsten Staehr
  14. Long-run determinants and misalignments of the real effective exchange rate in the EU By Mariarosaria Comunale
  15. Economic Development, Novelty Consumption, and Body Weight: Evidence from the East German Transition to Capitalism By Dragone, Davide; Ziebarth, Nicolas R.

  1. By: Yanrui Wu (Business School, University of Western Australia)
    Abstract: China’s local government debt (LGD) has recently become the focus of economic policy debates. However, information about LGD and its impact on economic growth in the Chinese economy is scarce. This paper attempts to present an empirical investigation of the impact of China’s LGD on economic growth. It is probably the first of its kind to focus on China and thus contributes to the general literature on the relationship between government debt and economic growth. The paper first provides an assessment of LGD in China’s regional economies, using recently released auditing statistics and other available secondary information. It then applies conventional growth analysis methods to examine the impact of LGD on regional growth in China. Various scenario and sensitivity analyses are also conducted, to accommodate the inadequacy and potentially poor quality of debt statistics.
    Date: 2015
  2. By: Niu, Linlin (BOFIT); Xua , Xiu (BOFIT); Chen , Ying (BOFIT)
    Abstract: We propose the use of a local autoregressive (LAR) model for adaptive estimation and forecasting of three of China’s key macroeconomic variables: GDP growth, inflation and the 7-day interbank lending rate. The approach takes into account possible structural changes in the data-generating process to select a local homogeneous interval for model estimation, and is particularly well-suited to a transition economy experiencing ongoing shifts in policy and structural adjustment. Our results indicate that the proposed method outperforms alternative models and forecast methods, especially for forecast horizons of 3 to 12 months. Our 1-quarter ahead adaptive forecasts even match the performance of the well-known CMRC Langrun survey forecast. The selected homogeneous intervals indicate gradual changes in growth of industrial production driven by constant evolution of the real economy in China, as well as abrupt changes in interestrate and inflation dynamics that capture monetary policy shifts.
    Keywords: Chinese economy; local parametric models; forecasting
    JEL: E43 E47
    Date: 2015–04–10
  3. By: Anping Chen (School of Economics, Jinan University,Guangzhou, China); Nicolaas Groenewold (Business School, University of Western Australia)
    Abstract: China’s pension system is in need of comprehensive reform in that it is fragmented in its coverage and significantly under-funded. Attempts to improve the coverage will likely exacerbate the financial strains. Thus it is urgent to improve the financial sustainability of the system and one policy which has been proposed is to increase the retirement age. There have been similar proposals in many other countries and they are in line with improved health and life-expectancy. In China’s case the partial coverage of the system is related to industry structure with much the best coverage being for government and SOE employees. Since this structure differs considerably across the regions in China, it is likely that a change in retirement age will have significantly different effects across China’s regions. Inter-regional disparities are already very substantial in China and it will be important to know whether changes in pension arrangements will widen or narrow these disparities. It is the object of the research reported in this paper to throw light on this question. To do this we construct a small theoretical model having some Chinese characteristics. The model has two regions (coast and interior), two sectors (formal and informal) two types of labour (skilled and unskilled), two levels of government (central and regional) and captures some features of the Chinese tax-expenditure system. Pension coverage is limited to skilled workers in the formal sector and pensions are assumed to be paid by regional governments. We linearise the model and solve it numerically using parameter values derived from average Chinese data for the period 2008-2013. We run two experiments, both involving a shocks designed to mimic an increase in the retirement age from 60 to 61. The first assumes that the regional governments use the extra net revenue resulting which results from the increase in retirement age for the provision of a government- provided consumption good while in the second case it is assumed that the government uses the revenue to reduce pension premia (or increase pension payments). In both cases the increase in retirement age increases the supply of skilled workers and depresses the relative skilled wage in both regions but by more in the interior than in the coast. Output of each good increases in each region but formal-sector output increases by more (since only the formal sector uses skilled labour); the income of skilled households falls but that of unskilled households rises; welfare increases in both regions for both household types but by more for unskilled than skilled and by more in the interior than in the coast. In addition, the welfare disparity between the coast and the interior is reduced. The results are similar in sign across the two experiments but the magnitude of the effects is generally larger in the second, i.e., where the regional governments use the additional net revenue to increase pension payments or reduce pension premia rather than simply producing more government output.
    Date: 2015
  4. By: Rod Tyers (Business School, University of Western Australia, and Research School of Economics Australian National University, and Centre for Applied Macroeconomic Analysis Crawford School of Government Australian National University)
    Abstract: Product and financial market integration determine the global implications of China’s recent growth surge and its on-going transition from export led growth. These alter China’s structural imbalance (its excess product supply and excess saving), which in turn shifts the international terms of trade, changing asset yields causing deflationary and then inflationary pressures abroad. The effects are here quantified using a global macro model with national portfolio rebalancing, in which asset differentiation is used to index financial integration. The growth surge is found to have conferred on the advanced economies gains in their terms of trade, incompletely offset by structural unemployment. By contrast, the global effects of the transition are shown to reverse some of these impacts and to be amplified by further financial integration, particularly for the US.
    Date: 2015
  5. By: Hasan, Iftekhar (BOFIT); Kobeissi , Nada (BOFIT); Wang, Haizhi (BOFIT); Zhou , Mingming (BOFIT)
    Abstract: This paper provides an empirical examination of the regional banking structures in China and their effects on entrepreneurial activity. Using a panel of 27 provinces and four directly controlled municipalities from 1997 through 2008, we find that the presence of large banking institutions negatively correlates with small business development in local markets and that this negative relation is driven mainly by participation of large banks in the short-term loan market. Rural banking institutions, in contrast, are found to promote regional entrepreneurial activity. Moreover, large state banks facilitate small business development in concentrated markets. When we interact measures of banking financing by state banks and rural banking institutions with a set of provincial level marketization indexes, we find that extensive marketization, factor market development, and sophistication of legal frameworks mitigate the negative effect of large state banks on small business development. In provinces with advanced market development, efficient factor markets, and favorable institutional settings, the positive effect of rural banking institutions on small business growth is even stronger. Finally, we present evidence that banks do a better job of promoting regional entrepreneurship when it occurs in conjunction with policies to foster innovation activity and assure protection of intellectual property rights.
    Keywords: banking structure; marketization; small business development; China
    JEL: G21 O16 P23 P25
    Date: 2015–03–27
  6. By: George J. Borjas; Kirk B. Doran; Ying Shen
    Abstract: The largest and most important flow of scientific talent in the world is the migration of international students to the doctoral programs offered by universities in industrialized countries. This paper uses the opening of China in 1978 to estimate the causal effect of this flow on the productivity of their professors in mathematics departments across the United States. Our identification strategy relies on both the suddenness of the opening of China and on a key feature of scientific production: intra-ethnic collaboration. The new Chinese students were more likely to be mentored by American professors with Chinese heritage. The increased access that the Chinese-American advisors had to a new pool of considerable talent led to a substantial increase in their productivity. Despite these sizable intra-ethnic knowledge spillovers, the relatively fixed size of doctoral mathematics programs (and the resulting crowdout of American students) implied that comparable non-Chinese advisors experienced a decline in the number of students they mentored and a concurrent decline in their research productivity. In fact, the productivity gains accruing to Chinese-American advisors were almost exactly offset by the losses suffered by the non-Chinese advisors. Finally, it is unlikely that the gains from the supply shock will be more evident in the next generation, as the Chinese students begin to contribute to mathematical knowledge. The rate of publication and the quality of the output of the Chinese students is comparable to that of the American students in their cohort.
    JEL: D83 J24 J61 O31
    Date: 2015–04
  7. By: Jin Fan (School of Management, University of Science and Technology of China); Yanrui Wu (Business School, University of Western Australia); Xiumei Guo (Curtin University Sustainability Policy Institute, Curtin University of Technology); Dingtao Zhao (Curtin University Sustainability Policy Institute, Curtin University of Technology); Dora Marinova (Curtin University Sustainability Policy Institute, Curtin University of Technology)
    Abstract: Carbon emission reduction could be achieved through extensive cooperation between relevant groups such as businesses, governments and consumers. Generally, carbon emissions stem from consumer behavior. To tackle the increasingly serious energy crisis and climate change in China, it is thus vital to control carbon emissions generated by the country’s urban consumers. From a consumption perspective, we utilize a self-organizing feature map (SOFM) model to analyze the spatial differentiation of per capita embedded carbon footprint (ECF) in urban China. We found that the spatial differentiation is significant with the per capita ECF of the east coastal area at a high level and that per capita disposable income is the key factor affecting ECF. Based on these findings, potential business opportunities to develop low-carbon products are discussed.
    Date: 2015
  8. By: ZHANG Hongyong
    Abstract: Using unique panel data on the temporary movement of Chinese workers to 186 economies during 1992-2012, I investigate the patterns and determinants of labor mobility in the services trade. I estimate a gravity model of labor mobility in two categories, namely, overseas labor services and overseas contracted projects. I find that distance (proxy for migration costs) and income are not the most important determinants of the latter. For overseas contracted projects, the dispatch of workers is not driven by their pure economic aims but by the Chinese government's policies and strategies such as its overseas project promotion policy. Furthermore, I employ propensity score matching with the difference-in-difference estimation method to investigate the impact of this policy upon labor mobility. The results show that the policy of promoting overseas contracted projects has causal and strong positive effects on labor mobility in construction-related sectors.
    Date: 2015–04
  9. By: BONNEFOND Céline; CLEMENT Matthieu
    Abstract: The purpose of this article is to analyse the influence of social class on nutrition knowledge and food preferences among Chinese urban adults with an emphasis on the middle class. The empirical investigations conducted as part of this research are based on data from the China Health and Nutrition Survey for 2009. First, we propose a multidimensional definition of social class that combines income, occupation and education to highlight the heterogeneity of the Chinese middle class. We identify four distinct groups: the elderly and inactive middle class, the old middle class, the lower middle class and the new middle class. In a second step, we assess the influence of social class on nutrition knowledge and food preference indices. Our results show that adults belonging to the elderly and inactive middle class and to the new middle class have better nutrition knowledge and healthier food preferences than their poorer counterparts.
    Keywords: nutrition knowledge, food preferences, social stratification, middle class, China
    JEL: I12 O53 Z13
    Date: 2015
  10. By: Martin Ravallion; Shaohua Chen
    Abstract: In what is probably the largest cash transfer program in the world today China’s Dibao program aims to fill all poverty gaps. In theory, the program creates a poverty trap, with 100% benefit withdrawal rate (BWR). But is that what we see in practice? The paper proposes an econometric method of estimating the mean BWR allowing for incentive effects, measurement errors and correlated latent heterogeneity. Under the method’s identifying assumptions, a feasible instrumental variables estimator corrects for incentive effects and measurement errors, and provides a bound for the true value when there is correlated incidence heterogeneity. The results suggest that past methods of assessing benefit incidence using either nominal official rates or raw tabulations from survey data are deceptive. The actual BWR appears to be much lower than the formal rate, and is also lower than the rate implied by optimal income tax models for poverty reduction. The paper discusses likely reasons based on qualitative observations from field work. The program’s local implementation appears to matter far more than incentives implied by its formal rules.
    JEL: H22 I32 I38 O12
    Date: 2015–04
  11. By: Rod Tyers (Business School, University of Western Australia)
    Abstract: China is transitioning toward more inward-focussed growth, causing adverse changes in the product and financial terms of trade in the advanced economies. At the same time, international financial markets tussle between tightening forces associated with the US recovery on the one hand and unconventional monetary expansion in Europe and Japan on the other. The way these shocks interact is examined in this paper using a global macro model with national portfolio rebalancing and asset differentiation and a representation of unconventional monetary policy. Results are found to be sensitive to the contributions of productivity and capital accumulation to China’s growth. When these are offered in realistic combination, the combined shocks are deflationary in the US and China, implying that contractionary US monetary policy is not imminent. Monetary responses in the US and China then combine with price targeting regimes in the EU and Japan to expand liquidity globally, amplifying impacts on financial markets and the global distribution of real investment.
    Date: 2015
  12. By: Merike Kukk
    Abstract: The paper investigates the extent to which household indebtedness suppressed consumption during the economic downturn in 2008-2009. The paper uses a unique quarterly panel dataset containing financial information on over 100,000 individuals. The dataset covers the period 2005-2011, when there were large changes in credit volumes, income and consumption in Estonia, a new EU member country. The estimations show that indebtedness measured by the debt-to-income ratio and the debt service ratio hampers consumption over the whole business cycle. The negative impact of the debt service ratio is, however, substantially stronger during the recession than in the pre-crisis and post-crisis periods, while the negative effect of the debt-to-income ratio shows a weakening trend over the sample period. The findings suggest that household indebtedness is amplifying the recession and the debt repayment burden indicates the mechanism which is at work.
    Date: 2014–09–03
  13. By: Karin Kondor-Tabun (Ministry of Finance of the Republic of Estonia); Karsten Staehr (Tallinn University of Technology/Eesti Pank)
    Abstract: The EU cohesion policy funding aims to enhance economic, social and territorialcohesion across regions and countries in the European Union. This paper discusses theimplementation of the policy in Estonia since 2004 using as background information surveysof the theoretical and empirical literature and a thorough description of the institutionalframework. Estonia received cohesion policy funding amounting to approximately 2.2 percentof GDP in 2004–2006 and 3.0 percent of GDP in 2007–2013. The funding went mainly toinfrastructure projects, enterprise support and human resource development. A key challengeis to ensure that the EU cohesion policy funds are used effectively and in ways that arebeneficial in the long term.
    Date: 2015–03–20
  14. By: Mariarosaria Comunale (Bank of Lithuania)
    Abstract: Exchange rate assessment is becoming increasingly relevant for economic surveillance in the European Union (EU). The persistence of different wage, price and productivity dynamics among the Economic and Monetary Union (EMU) countries or EU members with a fixed exchange regime with the euro, coupled with the impossibility of correcting competitiveness differentials via the adjustment of nominal rates, have resulted in divergent dynamics in Real Effective Exchange Rates. This paper explores the role of economic fundamentals, included in the transfer effect theory, in explaining medium/long-run movements in the Real Effective Exchange Rates in the EU over the period 1994–2012 by using heterogeneous, co-integrated panel frameworks in static and dynamic terms. In addition, the paper provides an analysis of the misalignments of the rate for each member state based on the “equilibrium” measure calculated from the permanent component of the fundamentals (the so-called Behavioural Effective Exchange Rate). We find that the coefficients of the determinants are extremely different across groups in magnitude and sometimes in sign as well and the transfer theory does not hold for periphery and the Central and Eastern European countries (CEECs). The relative importance of the transfer variable and the Balassa-Samuelson measure are crucial for the asymmetries. The resulting misalignments in EU28 are huge and the patterns diverge significantly across groups. The core countries have been undervalued for almost the whole period, which entails from an important increase in competitiveness for those countries. Instead the periphery has experienced high rates, especially in Portugal. In addition, the behaviour of CEECs is also driven, as expected, by the catching-up process and the criteria to the accession to the EU. The misalignments in this case are still extremely wide and reflect these phenomena.
    Keywords: real effective exchange rate, European Union, behavioural effective exchange rate, transfer problem, panel co-integration, exchange rate misalignments
    JEL: F31 C23
    Date: 2015–04–17
  15. By: Dragone, Davide (University of Bologna); Ziebarth, Nicolas R. (Cornell University)
    Abstract: This paper develops a conceptual framework that can explain why economic development goes along with increases in body weight and obesity rates. We first introduce the concept of novelty consumption, which refers to an increase in food availability due to trade or innovation. Then we study how novel food products alter the optimal consumption bundle and welfare, and possibly lead to changes in body weight. We test our model employing the German reunification as a fast motion natural experiment of economic development. Our data elicit detailed information on East Germans' food consumption, body mass, and diet-related health. After the fall of the Wall, East Germans permanently changed their diet by consuming novel western food products. A significant population share permanently gained weight. This is consistent with our theoretical framework where past affects current consumption, and where novel goods determine consumption changes over time with ambiguous effects on diet-related health.
    Keywords: economic development, food consumption, habit formation, learning, novel goods, obesity, nutrition-related health, German reunification
    JEL: D11 D12 I12 I15 L66 O10 O33 Q18 R22
    Date: 2015–04

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