nep-tra New Economics Papers
on Transition Economics
Issue of 2015‒05‒02
forty papers chosen by
J. David Brown
United States Census Bureau

  1. A lesson in market contestability : calculating the cost of Chinese state intervention in iron ore price negotiations By Luke Hurst
  2. An Adaptive Approach to Forecasting Three Key Macroeconomic Variables for Transitional China By Linlin Niu; Xiu Xu; Ying Chen;
  3. Demystifying the Chinese Housing Boom By Hanming Fang; Quanlin Gu; Wei Xiong; Li-An Zhou
  4. The Impact of the Chinese Exchange Policy on Foreign Trade with the European Union By Ana Cardoso; António Portugal Duarte
  5. The Value of Political Ties versus Market Credibility: Evidence from Corporate Scandals in China By T.J. Wong; Mingyi Hung; Fang Zhang
  6. Accounting for Labor Misallocation in China with Provincial Data 1980-2010 By Peiwen Bai; Wenli Cheng
  7. Investment Liberalisation, Technology Take-off and Export Market Entry: Does Foreign Ownership Structure Matter? By Girma, Sourafel; Gong, Yundan; Görg, Holger; Lancheros, Sandra
  8. Preference for Redistribution and Inequality Perception in China: Evidence from the CGSS 2006 By Zhou Xun
  9. Trade policy and industrial policy in China: What motivates public authorities to apply restrictions on exports? By Stéphanie Monjon; Julien Gourdon; Sandra Poncet
  10. Prospect of China's energy conservation and emission reduction during the remaining years of the 12th Five-Year Plan period By Ke Wang; Yingnan Liu
  11. The emission reduction effect and economic impact of an energy tax vs. a carbon tax in China : a dynamic CGE model analysis By Zou, Lele; Xue, Jinjun; Fox, Alan; Meng, Bo; Shibata, Tsubasa
  12. Relative Earnings and Firm Performance: Evidence from Publicly-listed Firms in China, 2005-2012 By Peiwen Bai; Wenli Cheng
  13. Corporate Philanthropy in China: A Case of Doing Well by Doing Good? By Zhong Qin; Minghuan Huang; Wenli Cheng
  14. Growth, Pollution, and Life Expectancy: China from 1991-2012 By Guojun He; Maoyong Fan; Maigeng Zhou; Avraham Ebenstein; Michael Greenstone; Peng Yin
  15. Firm-level Productivity Spillovers in China's Chemical Industry: A Spatial Hausman-Taylor Approach By Badi H. Baltagi; Peter H. Egger; Michaela Kesina
  16. Does Migration Lead to Regional Convergence in Russia? By Elena Vakulenko
  17. Ukrainian Crisis, Economic Crisis in Russia and the Eurasian Economic Union By Libman, Alexander
  18. Using Subjective Income Expectations to test the Permanent Income Hypothesis: Evidence from Chinese micro-data (Japanese) By YIN Ting; KUREISHI Wataru; WAKABAYASHI Midori
  19. Banking Contagion under Different Exchange Rate Regimes in CEE By Kutasi, Gábor
  20. Board Reforms and Firm Value: Worldwide Evidence By Albert Park; John Giles; Meiyan Wang
  21. Promotion Incentives in the Public Sector: Evidence from Chinese Schools By Albert Park; Naureen Karachiwalla
  22. Anti-Comparative Advantage: A Puzzle in U.S.-China Bilateral Trade By Jiandong Ju; Ziru Wei; Hong Ma
  23. Can Conditional Grants Attract Better Students: Evidence from Chinese Normal Universities By Li Han; Jiaxin Xie
  24. The Effect of Air Pollution on Mortality in China: Evidence from the 2008 Beijing Olympic Games By Guojun He; Maoyong Fan; Maigeng Zhou
  25. Magnet High Schools and Academic Performance in China: A Regression Discontinuity Design By Albert Park; Xinzheng Shi; Xuehui An
  26. Macroeconomic policy regime in Poland By Milka Kazandziska
  27. Accounting for the Sources of Growth in the Chinese Economy By Harry WU
  28. Do Manufacturing Firms Benefit from Services FDI? – Evidence from Six New EU Member States By J. Damijan; C. Kostevc; Philipp Marek; M. Rojec
  29. Global Technology Leadership: The Case of China By Naubahar Sharif
  30. A Model of China’s State Capitalism By Xi Li; Xuewen Liu; Yong Wang
  31. Strategic investment and international spillovers in natural gas markets By Robert A. Ritz
  32. The concept of territorial cohesion as understood and practiced by Polish regions By Tomasz Komornicki; Jacek Zaucha
  33. Theoretical foundations of fiscal gap as a long-term fiscal sustainability indicator and its estimates for Russia By Evgeny Goryunov; Sergey Sinelnikov-Murylev; Laurence J. Kotlikoff
  34. Is innovation activity persistent among small firms in developing countries? Evidence from Vietnam By Trinh, Long
  35. Testing the performance of technical trading rules in the Chinese market By Shan Wang; Zhi-Qiang Jiang; Sai-Ping Li; Wei-Xing Zhou
  36. Europe 2020 Strategy and Structural Diversity Between Old and New Member States. Application of zero-unitarizatin method for dynamic analysis in the years 2004-2013 By Adam P. Balcerzak
  37. The Parents’ Values of Early Childhood Education and Care in Russia: Toward the Construction of Evaluation Tools By Olga Savinskaya
  38. The problem of the inclusion of spatial dependence within the TOPSIS method By Michal Bernard Pietrzak
  39. Political Volatility and Capital Markets: Evidence from Transition By Christopher Hartwell
  40. Output gap measure based on survey data By Michał Hulej; Grzegorz Grabek

  1. By: Luke Hurst (East Asian Bureau of Economic Research)
    Abstract: This article analyses the motivation and impact of the 2009 intervention of the China Iron and Steel Association (CISA) in benchmark price negotiations. The impact of the transition from benchmark pricing to a spot market mechanism, which was a consequence of the CISA’s intervention, is examined using a constrained bilateral monopoly model to calculate the financial impact of switching pricing mechanisms on Australian exporters and Chinese importers.
    Keywords: iron ore, China
    JEL: F13 L16 L11
    Date: 2015–04
  2. By: Linlin Niu; Xiu Xu; Ying Chen;
    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
  3. By: Hanming Fang; Quanlin Gu; Wei Xiong; Li-An Zhou
    Abstract: We construct housing price indices for 120 major cities in China in 2003-2013 based on sequential sales of new homes within the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find enormous housing price appreciation during the decade, which was accompanied by equally impressive growth in household income, except in a few first-tier cities. While bottom-income mortgage borrowers endured severe financial burdens by using price-to-income ratios over eight to buy homes, their participation in the housing market remained steady and their mortgage loans were protected by down payments commonly in excess of 35 percent. As such, the housing market is unlikely to trigger an imminent financial crisis in China, even though it may crash with a sudden stop in the Chinese economy and act as an amplifier of the initial shock.
    JEL: R3
    Date: 2015–04
  4. By: Ana Cardoso (Faculty of Economics, University of Coimbra, Portugal); António Portugal Duarte (Faculty of Economics, University of Coimbra and GEMF, Portugal)
    Abstract: The aim of this paper is to analyze the impact of the Chinese foreign exchange policy on foreign trade with the European Union. After describing the importance of the exchange rate in an open economy and some of the methodologies employed to calculate its equilibrium value, we examine whether the Chinese competitiveness is due to the existence of misalignment (undervaluation) of its exchange rate, or rather, to other sources of competitiveness. For this purpose, we use a Vector Error Correction (VEC) model to estimate a long-run exports equation. The empirical results indicate that over the past few years, Chinese exports have benefited from an ‘unfair’ competitive advantage resulting from the manipulation of its currency value.
    Keywords: Competitiveness, China, European Union, foreign trade, misalignments, real exchange rate.
    JEL: C39 F10 O24
    Date: 2015–04
  5. By: T.J. Wong (Department of Accounting, The Chinese University of Hong Kong); Mingyi Hung (Department of Accounting, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Fang Zhang (Department of Accounting, Hong Kong Baptist University)
    Abstract: This paper compares the value of political ties and market credibility in China by examining the consequence of corporate scandals. We categorize Chinese corporate scandals by whether the scandal is primarily associated with the destruction of i) the firm’s political networks (political scandals), ii) the firm’s market credibility (market scandals), or iii) both (mixed scandals). Consistent with our hypothesis that scandals signaling the destruction of political ties are associated with greater losses in firm value than scandals signaling the destruction of market credibility, we find that the stock market reacts more negatively to political and mixed scandals than to market scandals. In addition, the greater negative market reactions associated with political and mixed scandals are primarily driven by firms that rely more on political networks. We also find that, compared to market scandals, political and mixed scandals lead to larger decreases in operating performance, greater reduction in loans from state-owned banks, and higher departure of political directors.
    Keywords: political economy, market credibility, corporate scandals, China
    JEL: G34 O17 P16 G32 G39
    Date: 2015–03
  6. By: Peiwen Bai; Wenli Cheng
    Abstract: This paper develops a simple accounting framework to measure the extent of labor misallocation in Chinese provinces over the period 1980-2010. It also investigates possible factors that influence labor misallocation. The main findings are: (1) the extent of labor misallocation fell substantially in the first half of 1980s. During the 25 years since 1985, labor allocation has improved somewhat but there was no monotonic trend of improvement over time. (2) In 2010, the Eastern region had the lowest level of labor misallocation, followed by the Central region, and the Western region. (3). Wage differentials cross primary, secondary and tertiary sectors accounted for a substantial portion of measured overall labor misallocation; the secondary sector’s wage deviations from VMPL also had the effect of raising labor misallocation, whereas the impacts of the primary and tertiary sectors’ wage deviation from VMPL differed over time. (4) A higher level of urbanization, the development of the tertiary sector and the growth of the non-state sector appear to have contributed to a reduction in labor misallocation.
    Keywords: accounting of resource misallocation; labor misallocation in China
    JEL: C43 J01
    Date: 2014–11
  7. By: Girma, Sourafel (University of Nottingham); Gong, Yundan (Aston University); Görg, Holger (Kiel Institute for the World Economy); Lancheros, Sandra (University of Nottingham)
    Abstract: Before and after its accession to the WTO in 2001, China has undergone a far-reaching investment liberalisation. As part of this, existing restrictions on foreign ownership structure and mandatory export and technology transfer requirements imposed on foreign firms have been lifted in a number of industries. Against this background we identify the causal effects of foreign acquisitions on export market entry and technology take-off and evaluate whether the level of foreign ownership plays a role in stimulating these changes. Using doubly robust propensity score reweighted bivariate probit regressions to control for the selection bias associated with firm level foreign acquisition incidences, we uncover strong but heterogeneous positive effects on export activity for all types of foreign ownership structure. We also find that minority foreign owned acquisition targets experience higher likelihood of R&D, providing evidence that joint ventures can contribute positively to China's "science and technology take-off".
    Keywords: investment liberalization, FDI, China, propensity score reweighting, doubly robust estimation
    JEL: F23
    Date: 2015–04
  8. By: Zhou Xun (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, GREQAM)
    Abstract: In this paper I investigate the conditional correlation between preference for redistribution and the perceived role of "circumstances" and "effort" using the Chinese General Social Survey. I found very signi?cant correlations, thus validating the hypothesis of "sense of justice" for China. The migrant worker group who has dual identity (living/working in an urban area while being registered as a rural individual) is analysed in order to identify a discrimination effect (induced by the Chinese rural-urban segmentation policy) upon attitudes. However, being migrant is an endogenous variable to the attitude variables and the consistent estimate of this effect is much more important than the effect produced by a naïve estimate. The econometric model is a multivariate triangular LDV system with a binary endogenous explanatory variable estimated via a GHK simulator method. To implement the GHK calculations, I propose a parametric constraint to impose the positivity of the 3 × 3 correlation matrix. A generalisation for higher dimension cases is provided.
    Keywords: preference for redistribution, inequality perceptions, conditional correlation, Hukou and migrant worker, binary endogenous, GHK simulator
    JEL: C36 D19 H23 J18
    Date: 2015–04
  9. By: Stéphanie Monjon; Julien Gourdon; Sandra Poncet
    Abstract: This work investigates the motivations behind the Chinese fiscal policy on exports. It relies on very detailed product level (HS 6 digit) data over the period 2002-12 covering both export tax and export VAT rebate. It aims to uncover the respective importance of the various policy motivations and how they evolved over time. Our empirical analysis relates the tax rates to proxies of official objectives pursued by the Chinese public authorities such as those related to the promotion of technology or protection of the environment but also other unstated motives pertaining to subsidization of downstream sectors and terms of trade. Our results suggest that the Chinese fiscal policy targeting exports follows a variety of objectives whose relative importance changed over the period 2002-2012.
    Keywords: Trade policy;industrial policy;China;VAT system;export tax
    JEL: F10 F14 Q56
    Date: 2015–04
  10. By: Ke Wang; Yingnan Liu
    Abstract: China has set controlling greenhouse gas (GHG) emissions as a key task and an essential part of economic development and industrial upgrading for energy saving and climate change mitigation. Energy conservation has been given great attention since the beginning of the 11th Five-Year Plan (FYP) period (2006-2010), and in 2011, specific goals have been made for reduction of energy intensity and carbon intensity for the 12th FYP period (2011-2015). In this study, according to the regional data of the first two years of the 12th FYP period, current situations of energy conservation and emission reduction in China and its provinces were analyzed. Recommendations for 2013-2015 are discussed based on continuing goals, economic and natural conditions. Shifting of energy consuming structure is primarily discussed as one of the main approaches, and alternate methods of energy restructure are suggested due to the limitation of natural resources in China.
    Keywords: Carbon intensity, China, Emission reduction, Energy conservation, Energy intensity, Five-Year Plan
    JEL: Q47 Q54
    Date: 2014–09–10
  11. By: Zou, Lele; Xue, Jinjun; Fox, Alan; Meng, Bo; Shibata, Tsubasa
    Abstract: Chinese government commits to reach its peak carbon emissions before 2030, which requires China to implement new policies. Using a CGE model, this study conducts simulation studies on the functions of an energy tax and a carbon tax and analyzes their effects on macro-economic indices. The Chinese economy is affected at an acceptable level by the two taxes. GDP will lose less than 0.8% with a carbon tax of 100, 50, or 10 RMB/ton CO2 or 5% of the delivery price of an energy tax. Thus, the loss of real disposable personal income is smaller. Compared with implementing a single tax, a combined carbon and energy tax induces more emission reductions with relatively smaller economic costs. With these taxes, the domestic competitiveness of energy intensive industries is improved. Additionally, we found that the sooner such taxes are launched, the smaller the economic costs and the more significant the achieved emission reductions.
    Keywords: China, Energy policy, Environmental policy, Taxation, Climatic change, Econometric model, Economic conditions, Energy tax, Carbon tax, Climate change, CGE model, Energy intensive industry
    JEL: C13 C15 E37 J21 K32 Q54 C54 O44
    Date: 2015–01
  12. By: Peiwen Bai; Wenli Cheng
    Abstract: This paper studies the relationship between three measures of relative earnings and firm performance based on data of 664 listed manufacturing companies in China over the period 2005-2012. It finds that (1) capital earnings relative to labor earnings and the overall average wage level relative to a firm’s average wage level had negative effects on firm performance; (2) the earnings of high-level managers relative to ordinary workers had a positive impact on firm performance; and (3) the effects of relative earnings on firm performance differed across regions, industry characteristics, and firm ownership structures, and over different time periods.
    Keywords: relative income share of capital and labor, relative earnings of management and workers, relative wage, firm performance in China
    JEL: D24 J31
    Date: 2014–11
  13. By: Zhong Qin; Minghuan Huang; Wenli Cheng
    Abstract: Based on panel data of 1891 Chinese listed companies over the period 2008-2013, we find a positive correlation between the companies’ philanthropic giving and their ability to obtain bank loans in the subsequent year. This result suggests that corporate philanthropy can be usefully seen as an investment in cultivating good relationships with the government and that the investment return comes in the form of better access to government-controlled financial resources. Thus regardless whether or not the companies were motivated by altruistic considerations, their philanthropic giving was in fact (handsomely) rewarded. In this sense, corporate philanthropy in China seems to be a case of doing well by doing good.
    Keywords: Corporate Philanthropy, Long-term Bank Loans, Political Connections
    Date: 2014–10
  14. By: Guojun He (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Maoyong Fan (Department of Economics, Ball State University); Maigeng Zhou (National Center for Chronic and Noncommunicable Disease Control and Prevention, Chinese Center for Disease Control and Prevention); Avraham Ebenstein (Department of Economics, Hebrew University of Jerusalem); Michael Greenstone (Department of Economics, University of Chicago; National Bureau of Economic Research (NBER)); Peng Yin (National Center for Chronic and Noncommunicable Disease Control and Prevention, Chinese Center for Disease Control and Prevention)
    Abstract: This paper examines the relationship between income, pollution, and mortality in China from 1991-2012. Using first-difference models, we document a robust positive association between city-level GDP and life expectancy. We also find a negative association between city-level particulate air pollution exposure and life expectancy that is driven by elevated cardiorespiratory mortality rates. The results suggest that while China's unprecedented economic growth over the last two decades is associated with health improvements, pollution has served as a countervailing force.
    Keywords: growth, pollution, life expectancy, China
    JEL: Q13 P28 Q28 Q53
    Date: 2015–02
  15. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Peter H. Egger (ETH Zurich); Michaela Kesina (ETH Zurich)
    Abstract: This paper assesses the role of intra-sectoral spillovers in total factor productivity across Chinese producers in the chemical industry. We use a rich panel data-set of 12,552 firms observed over the period 2004-2006 and model output by the firm as a function of skilled and unskilled labor, capital, materials, and total factor productivity, which is broadly defined. The latter is a composite of observable factors such as export market participation, foreign as well as public ownership, the extent of accumulated intangible assets, and unobservable total factor productivity. Despite the richness of our data-set, it suffers from the lack of time variation in the number of skilled workers as well as in the variable indicating public ownership. We introduce spatial spillovers in total factor productivity through contextual effects of observable variables as well as spatial dependence of the disturbances. We extend the Hausman and Taylor (1981) estimator to account for spatial correlation in the error term. This approach permits estimating the effect of time-invariant variables which are wiped out by the fixed effects estimator. While the original Hausman and Taylor (1981) estimator assumes homoskedastic error components, we provide spatial variants that allow for both homoskedasticity and heteroskedasticity. Monte Carlo results show, that our estimation procedure performs well in small samples. We find evidence of positive spillovers across chemical manufacturers and a large and significant detrimental effect of public ownership on total factor productivity.
    Keywords: Technology Spillovers, Spatial econometrics, Panel data econometrics, Firm-level productivity, Chinese firms
    JEL: C23 C31 D24 L65
    Date: 2014–12
  16. By: Elena Vakulenko (-)
    Abstract: We analyze the impact of migration on wage, income and the unemployment rate. Using the official Russian statistical database from 1995 to 2010, we calculate a dynamic panel data model with spatial effects. There is a positive spatial effect for wage, income and unemployment rate. There is no significant impact of migration on the unemployment rate. We find a negative relationship between net internal migration and both wages and income, which is explained by the positive effect of emigration and negative effect of immigration for income. However, the migration benefits are not big enough to make a difference on the Gini index across regions. We conclude that migration does not affect the regional -convergence of economic indicators.
    Keywords: convergence, migration, wage, income, unemployment rate, spatial dynamic panel data models
    JEL: R23 C23
    Date: 2015–03–06
  17. By: Libman, Alexander
    Abstract: This note reviews the implications of the political crisis around Ukraine and of the economic crisis in Russia on the development of Eurasian regionalism and, in particular, the future of the Eurasian Economic Union. It identifies the key effects of the crises, as well as discusses alternative ways of future development of the Eurasian Economic Union and assesses their likelihood.
    Keywords: Eurasian regionalism; economic crisis in Russia; crisis around Ukraine
    JEL: F15
    Date: 2015
  18. By: YIN Ting; KUREISHI Wataru; WAKABAYASHI Midori
    Abstract: In this paper, we examine whether consumption is in response to the change of expectations of income in urban China, namely, testing for excess sensitivity of consumption using subjective income expectations from the panel "Survey of Living Preferences and Satisfaction," conducted at Osaka University. The estimated results by instrumental variables (IV) show that the growth rates of consumption and actual income are not affected by income growth rate expectations in all periods of 2009-2010, 2010-2011, and 2009-2011. This implies that the expectations of income growth have no effect on the growth of consumption, which suggests that the rectangular condition of the permanent income hypothesis is satisfied in urban China.
    Date: 2015–04
  19. By: Kutasi, Gábor
    Abstract: The global crisis of 2008 caused both liquidity shortage and increasing insolvency in the banking system. The study focuses on credit default contagion in the Central and Eastern European (CEE) region, which originated in bank runs generated by non-performing loans granted to non-financial clients. In terms of methodology, the paper relies on one hand on review of the literature, and on the other hand on a data survey with comparative and regression analysis. To uncover credit default contagion, the research focuses on the combined impact of foreign exchange rates and foreign private indebtedness.
    Keywords: financial contagion, banking, Central and Eastern Europe, foreign exchange rate, non-performing loan
    JEL: F31 F37 G17 G21 G33
    Date: 2015
  20. By: Albert Park (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); John Giles (The World Bank); Meiyan Wang (Institute for Population and Labor Economics, Chinese Academy of Social Sciences)
    Abstract: This paper provides new evidence on educational disruptions caused by the Cultural Revolution and identifies the returns to schooling in urban China by exploiting individuallevel variation in the effects of city-wide disruptions to education. The return to college is estimated at 49.8% using a conventional Mincer-type specification and averages 37.1% using supply shocks as instruments and controlling for ability and school quality, suggesting that high-ability students select into higher education. Additional tests show that the results are unlikely to be driven by sample selection bias associated with migration or alternative pathways through which the Cultural Revolution influenced adult productivity.
    Keywords: returns to schooling, wages, education, China
    JEL: I20 J24 J30 O15 O53
    Date: 2015–03
  21. By: Albert Park (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Naureen Karachiwalla (International Food Policy Research Institute (IFPRI))
    Abstract: We provide the first evidence that promotion incentives can influence effort of employees in the public sector by studying China’s system of annual evaluations and promotions for teachers. Theoretical predictions from a tournament model of promotion incentives are tested using panel data on primary and middle school teachers in western China. Consistent with theory, we find that promotions are associated with significant wage increases, that higher wage increases are associated with higher effort, that teachers increase effort in the years leading up to promotion eligibility but reduce effort if they are repeatedly passed over for promotion, and that increasing the number of competitors reduces the relative performance of those at the extremes of the skill distribution. Evaluation scores are positively associated with time spent on teaching and with student test scores, diminishing concerns that evaluations are manipulated.
    Keywords: teacher incentives, promotions, China
    JEL: J31 J33 J45 M51
    Date: 2015–02
  22. By: Jiandong Ju (Shanghai University of Finance and Economics and Tsinghua University and Hong Kong Institute for Monetary Research); Ziru Wei (Tsinghua University); Hong Ma (Tsinghua University)
    Abstract: From 1992 to 2011, the total trade volume between the U.S. and China increased by 25 times, and China's share in U.S. total imports increased from 5% to 20%. However, the U.S.'s share in China's total imports dropped from 11% to 8% in the same period. In the major categories of U.S. exports to China, Waste & Scrap increased from 744 million dollars in 2000 to 7,562 million dollars in 2008, rising 916% times and becoming the No.1 product that the U.S exports to China. It is important to understand what explains these structural changes, and to ask whether the principle of comparative advantage determines the structure of U.S.-China bilateral trade. Interestingly, we find an "Anti-Comparative Advantage" puzzle: the U.S. exports less to China in sectors where it has greater comparative advantage, while China exports more to the U.S. in its sectors with greater comparative advantage. To further study this issue, we extend Eaton-Kortum model of bilateral trade to multiple sectors and test it empirically using US and China trade data. We find that after controlling for the importer's demand, trade costs and factor intensities, etc., comparative advantage cannot explain U.S.-China bilateral trade flows. The puzzle survives various robustness checks.
    JEL: F11 F14 F15
    Date: 2015–04
  23. By: Li Han (Division of Social Science, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Jiaxin Xie (Division of Social Science, Hong Kong University of Science and Technology)
    Abstract: One recent policy tend to improve teacher quality is providing conditional grants to trainees in teacher colleges and commit them to working in disadvantaged areas upon graduation. Yet little is known whether such policies attract better trainees. This paper evaluates a conditional grant program in Chinese teachers' colleges, which commits students to teaching in their home province. Using a triple difference method, we find that teaching majors obtain better students due to the conditional grants. Exploring the heterogeneous treatment effects across regions, the policy effects not only increase as the costs of living during college decrease, but are larger in provinces with larger shares of disadvantaged students – i.e. rural, female, rural female, and with more siblings. These results suggest that the Chinese free teacher education program successfully attracts high quality students into the teaching force, and these high quality teacher trainees are likely to be credit constrained.
    Keywords: conditional grants, teacher quality, China
    JEL: P36 H52 H75
    Date: 2015–03
  24. By: Guojun He (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Maoyong Fan (Department of Economics, Ball State University); Maigeng Zhou (National Center for Chronic and Noncommunicable Disease Control and Prevention, Chinese Center for Disease Control and Prevention)
    Abstract: By exploiting exogenous variation in air quality during the 2008 Beijing Olympic Games, we estimate the effect of air pollution on mortality in China. We find that a 10-μg/m^3 (roughly 10%) decrease in PM_10 concentrations reduces monthly standardized all-cause mortality by 6.63%. The mortality reduction during the Olympics is mainly driven by fewer cardiocerebrovascular and respiratory deaths. Extrapolating our results to all urban areas in China, we estimate that the economic benefits from averted pre-mature deaths would range from 380 billion to 6 trillion Yuan annually if PM_10 concentrations were reduced to the WHO guideline level of 20 μg/m^3.
    Keywords: air pollution, mortality, particulate matter, 2008 Beijing Olympic Games
    JEL: Q53 I15 I18
    Date: 2015–01
  25. By: Albert Park (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Xinzheng Shi (School of Economics and Management, Tsinghua University); Xuehui An (National Center for Education Development Research, China Ministry of Education)
    Abstract: This paper investigates the impact of high school quality on students’ educational attainment using a regression discontinuity research design based on entrance examination score thresholds that strictly determine admission to the best high schools. Using data from rural counties in Western China, we find that attending a magnet school significantly increases students’ college entrance examination scores and the probability of being admitted to college.
    Keywords: magnet high school, regression discontinuity design, academic performance
    JEL: I21 I28 O53
    Date: 2015–02
  26. By: Milka Kazandziska (Berlin School of Economics and Law, Carl von Ossietzky University Oldenburg in Germany)
    Abstract: The goal of this paper is to analyse the economic development of Poland using the concept of macroeconomic policy regimes (MPRs). Six elements of a MPR will be identified: foreign economic policy, industrial policy, the financial system, wage policy, monetary policy and fiscal policy. Examining the functionality of the development of these elements applied to Poland is a further aim of this paper. The functionality of the development of the MPR elements will be analysed on the basis of the fulfilment of the objectives, as well as the use of the proposed instruments and strategy assigned to every element of MPR. Due to space limits, we are going to focus on the former in this paper. Taking into consideration that Poland is an emerging and a relatively open economy, foreign economic policy and industrial policy play very significant roles in restructuring of the economy towards production and exports of high value-added products, which would enable the country to follow a growth path consistent with an external balance. The financial needs of the manufacturing sector and particularly of the producers and/or exporters of high-end products need to be satisfied by the financial system, whose stability needs to be secured with the help of monetary policy. The latter is, moreover, in charge of providing low-cost finance and maintaining the stability of the exchange rate. Stabilising the inflation rate would be given to wage policy. Fiscal policy’s main tasks would be to correct aggregate demand shocks and reduce income inequality.
    Keywords: Macroeconomic regime; open economy policies; emerging countries; industrial policy; Poland
    JEL: E02 E58 E61 F41 F43
    Date: 2015–04
  27. By: Harry WU
    Abstract: Using a newly constructed China Industrial Productivity (CIP) data set, this study adopts the Jorgensonian aggregate production possibility frontier (APPF) framework incorporating Domar weights to account for the industry origin of China's aggregate growth for the period 1980-2010. We show that 7.14 percentage points of China's gross domestic product (GDP) growth of 9.16% per annum can be attributed to the increase in labor productivity and 2.02 percentage points to the number of hours worked. The labor productivity growth can be further decomposed into 5.55 percentage points of capital deepening, 0.35 percentage points of labor quality improvement, and 1.24 percentage points of total factor productivity (TFP) growth. Across industries, those less prone to government intervention, such as agriculture and "semi-finished & finished" manufacturing industries, appear to be more productive than those subject to more government intervention, typically the "energy" industry group. The Domar aggregation scheme also reveals that only two-thirds of the 1.24% annual TFP growth, or 0.84 percentage points, are directly from industries and the remaining 0.40 percentage points are from a net factor reallocation effect in which labor played a positive role of 0.56 percentage points whereas capital played a negative role of -0.16 percentage points.
    Date: 2015–04
  28. By: J. Damijan; C. Kostevc; Philipp Marek; M. Rojec
    Abstract: This paper focuses on the effect of foreign presence in the services sector on the productivity growth of downstream customers in the manufacturing sector in six EU new member countries in the course of their accession to the European Union. For this purpose, the analysis combines firm-level information, data on economic structures and annual national input-output tables. The findings suggest that services FDI may enhance productivity of manufacturing firms in Central and Eastern European (CEE) countries through vertical forward spillovers, and thereby contribute to their competitiveness. The consideration of firm characteristics shows that the magnitude of spillover effects depends on size, ownership structure, and initial productivity level of downstream firms as well as on the diverging technological intensity across sector on the supply and demand side. The results suggest that services FDI foster productivity of domestic rather than foreign controlled firms in the host economy. For the period between 2003 and 2008, the findings suggest that the increasing share of services provided by foreign affiliates enhanced the productivity growth of domestic firms in manufacturing by 0.16%. Furthermore, the firms’ absorptive capability and the size reduce the spillover effect of services FDI on the productivity of manufacturing firms. A sectoral distinction shows that firms at the end of the value chain experience a larger productivity growth through services FDI, whereas the aggregate positive effect seems to be driven by FDI in energy supply. This does not hold for science-based industries, which are spurred by foreign presence in knowledge-intensive business services.
    Keywords: production, cost, capital, total factor and multifactor productivity, capacity; economic integration
    JEL: D24 F15
    Date: 2015–04
  29. By: Naubahar Sharif (Division of Social Science, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology)
    Abstract: Over the last century and a half, global technological leadership has shifted from Great Britain to the United States. In this paper we argue that China is positioning itself to assume global leadership in technology within the coming few decades. We identify three sources of competitive advantage for China’s ascent in the global technology stakes: its massive domestic market, its centralized power and willingness to employ state-sponsored industrial policy and government support, and the process of globalization that continues to transform markets worldwide. After acknowledging skeptical views of China’s capacity to achieve global technology leadership, we survey the present state of affairs and assess its prospects for growth based on statistical evidence and multiple illustrative examples. We argue that the three sources of competitive advantage we explicate offer China a path to imminent global technological leadership.
    Keywords: technology leadership, innovation, industrial policy, globalization, China
    JEL: Q55 O31 O32 O14
    Date: 2015–02
  30. By: Xi Li (Department of Accounting, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Xuewen Liu (Department of Finance, Hong Kong University of Science and Technology); Yong Wang (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology)
    Abstract: Despite consistently lower productivity, China’s state-owned enterprises (SOEs) exhibited higher profitability than non-SOEs after 2001 while the opposite was true in the 1990s, even with markets becoming increasingly liberalized and GDP growth remaining high throughout the whole period. To address this growth puzzle, we develop a general-equilibrium model based on the following under-appreciated vertical structure featured in China’s state capitalism: SOEs monopolize key upstream industries, whereas downstream industries are largely open to private competition. We show how the upstream SOEs extract rents from the liberalized downstream industries in the process of structural change and globalization. The unprecedented prosperity of SOEs is thus symptomatic of the incompleteness of market oriented reforms, distorting factor prices, impeding structural change, depressing GDP, and reducing public welfare. We also explain how this vertical structure emerged endogenously, and why this development model of state capitalism is not sustainable. General implications for other countries are also discussed.
    Keywords: structural change, growth and development, state capitalism, Chinese economy, state-owned enterprises
    JEL: E02 E60 O10 O43 P31
    Date: 2015–02
  31. By: Robert A. Ritz
    Abstract: This paper presents a game-theoretic analysis of multimarket competition with capacity investments, applied to international gas markets. It identifies a strategic advantage of «focused» pipeline gas producers (e.g., Gazprom) over «diversified» multimarket exporters of liquefied natural gas (e.g., Qatar). Based on this, the paper examines the spillover impacts of the Fukushima nuclear accident onto European gas markets, both in the short- and longer-term. It also discusses Russia’s gas export strategy, especially the 2014 deals with China. More generally, the analysis shows how a less efficient oligopolist can be more profitable, and speaks to policy discussions about «security of supply» in energy markets.
    Keywords: Competitive advantage, corporate diversification, liquefied natural gas (LNG), supply security, strategic investment
    JEL: D43 F12 L25 L95
    Date: 2015–04–21
  32. By: Tomasz Komornicki (Institute of Geography and Spatial Organization, Polish Academy of Sciences, Warsaw, Poland); Jacek Zaucha (Institute for Development, Sopot, Poland)
    Abstract: In the paper, the results of research on integration of various aspects of development in Polish voivodships are shown with a particular reference to territorial capital. An answer is sought to the question, “to what extent and how the Polish regions managed to successfully follow/implement the paradigm of territorial cohesion. For this purpose the findings of a questionnaire survey study, conducted with the offices responsible for a broadly understood development of voivodships were made use of. The research reveals that representatives of regional authorities are relatively well acquainted with issues relating to territorial cohesion, but their understanding of this concept is generally narrower than that found in theoretical studies. Territorial cohesion is rightly associated with conducting spatial policy, as well as with utilization of endogenous development factors. At the level of definition the majority of voivodships underline the role of endogenous factors for growth, but as regards the shape of their intraregional policy more traditional approach is widely prevalent. Regions see their internal spatial policy as nothing but delimitation of areas. This takes place based on negative criteria (referring to “problem areas” that were formerly identified). A lack of integrative approach is also typical. Territory fails to be treated as a subject of integrative policy, and, as well, as an opportunity that can be used to overcome the sectoral divisions. It is rather treated as a tool for achieving other goals. Simultaneously, however, an evolution in approach (forced by the EU regulations) is clearly visible, which forms the basis for more territorial-based policy on the regional level.
    Keywords: territorial capital, regional development
    JEL: R11 R12 R13
    Date: 2015–02
  33. By: Evgeny Goryunov (Gaidar Institute for Economic Policy); Sergey Sinelnikov-Murylev (Russian Foreign Trade Academy); Laurence J. Kotlikoff (Boston University)
    Abstract: Fiscal gap is an indicator of long run sustainability of government finance. It is used for assessment of the extent to which current fiscal policy is able to keep government budget solvent in the longer period. Fiscal gap is derived from intertemporal budget constraint which connects flows of budget outlays and receipts aggregated along decades. Fiscal gap is defined as a sum of current government debt and present value of future primary deficit flow. In order to get an estimate of Russia’s general government fiscal gap we consider three scenarios which are based on different assumptions regarding demographic trends, productivity growth, extractable reserves of oil and natural gas, long term price of oil and natural gas etc. Estimated value of fiscal gap is positive in all three scenarios which implies that current fiscal policy cannot provide budget sustainability in the long run. There are two major factors of the budget imbalances: rising health and pension expenditures due to demographics trends and shrinking role of tax revenues from energy sector due to extraction stagnation. Fiscal gap value under intermediate scenario is equal to 1613 trln 2014 rubles or 13,6% of present value of GDP which is close to fiscal gap in several advanced economies. This study is an extension of (Goryunov et al., 2013) one made by a group of authors headed by Laurence J. Kotlikoff.
    Keywords: fiscal gap, fiscal sustainability, fiscal policy, budget constraints, budget sustainability
    JEL: E62 H51 H52 H55 H62 H63 H68 J11
    Date: 2015
  34. By: Trinh, Long
    Abstract: Using firm-level panel data collected in Vietnam bi-annually from 2005 to 2013, this paper examines whether innovation is persistent among small firms in Vietnam. The empirical results obtained from dynamic random effect probit and dynamic random effect ordered probit show that the innovation activity is persistent among these small firms. Our estimation results also show slightly different roles of human capital of firm’s owner and employees in innovation activities. While the owner’s human capital is associated with creating a new product, employees’ human capital is positively correlated with upgrading the existing products or production procedure. However, we do not find evidence on the roles of unobserved heterogeneity in explaining this persistence. Our results are consistent with results found in the literature for firms in developed economies.
    Keywords: Innovation, Persistence of Innovation, Unobserved heterogeneity, Dynamic Random Effect Probit Model, Dynamic Random Effect Ordered Probit Model, Small and Medium Enterprises, Vietnam
    JEL: C23 C25 L20 O31 O33
    Date: 2015–04–14
  35. By: Shan Wang (ECUST); Zhi-Qiang Jiang (ECUST); Sai-Ping Li (Academia Sinica); Wei-Xing Zhou (ECUST)
    Abstract: Technical trading rules have a long history of being used by practitioners in financial markets. Their profitable ability and efficiency of technical trading rules are yet controversial. In this paper, we test the performance of more than seven thousands traditional technical trading rules on the Shanghai Securities Composite Index (SSCI) from May 21, 1992 through June 30, 2013 and Shanghai Shenzhen 300 Index (SHSZ 300) from April 8, 2005 through June 30, 2013 to check whether an effective trading strategy could be found by using the performance measurements based on the return and Sharpe ratio. To correct for the influence of the data-snooping effect, we adopt the Superior Predictive Ability test to evaluate if there exists a trading rule that can significantly outperform the benchmark. The result shows that for SSCI, technical trading rules offer significant profitability, while for SHSZ 300, this ability is lost. We further partition the SSCI into two sub-series and find that the efficiency of technical trading in sub-series, which have exactly the same spanning period as that of SHSZ 300, is severely weakened. By testing the trading rules on both indexes with a five-year moving window, we find that the financial bubble from 2005 to 2007 greatly improve the effectiveness of technical trading rules. This is consistent with the predictive ability of technical trading rules which appears when the market is less efficient.
    Date: 2015–04
  36. By: Adam P. Balcerzak (Nicolaus Copernicus University, Poland)
    Abstract: In the year 2015 the European Union has reached the halfway of implementation of Europe 2020 strategy, which is aimed at forming the conditions for sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion. In this context the aim of the paper is to analyze the level of fulfillment its aims with special concentration on diversity between New Member States that joined European Union in 2004 and 2007 (EU-10) and Old European Union Members (EU-15). The empirical part of the paper is based on the taxonomic research with application of zero-unitarization method. In order to make the dynamic analysis for the years 2004-2013 the constant reference point for the whole period was used. The evaluation was based on the Eurostat Europe 2020 indicators. The analysis showed significant diversity between New and Old Member States. However, in the years 2004-2013 EU-10 had made an important progress in the implementation of Europe 2020 strategy.
    Keywords: Europe 2020 strategy, multivariate analysis, zero-unitarization method
    JEL: C00 E61
    Date: 2015–04
  37. By: Olga Savinskaya (National Research University Higher School of Economics.)
    Abstract: This article describes the development of tools for parental evaluation of the quality of services in municipal kindergartens. The parents’ point of view is required as part of a complex evaluation of the quality of educational services in order to make an evidence-based educational policy. We emphasize the importance of a preschool educational institution and its complex role in the implementation of the principles of the welfare state: it has not only an educational, but also a social function, providing governmental support to families with children. This statement is discussed in the literature review which emphasizes the importance of full day educational services. These services allow parents of preschool children to exercise their right to work, as well as perform the socializing role of a kindergarten. Qualitative methodology was used in the research. The empirical base of the study is 30 in-depth interviews with mothers as more involved part of parents. The results show that parents understand the service provided by a kindergarten as a complex, aimed primarily at daytime children’s education and development in a specifically organized educational space, performed by professional educators. The greatest parental value is children’s opportunity to "learn how to communicate", to resolve conflicts and to find compromises, and to relate their behavior with group-mates and peers. The second most important value of education in a kindergarten is the development of life skills, surviving with routines, as well as the associated skill initiative. At the same time, the main professional competence of the educator is seen in their ability to create a positive emotional climate, an atmosphere of openness for the realization of a child’s individuality and to create a space for comfortable communication with parents
    Keywords: early childhood education, education policy, evaluation, preschool, preschoolers, practices and senses, Russia
    JEL: E32
    Date: 2015
  38. By: Michal Bernard Pietrzak (Nicolaus Copernicus University)
    Abstract: According to Tobler’s first law of geography, one of the key issues in doing the regional research is considering spatial location. Therefore, the article presents a proposal for modifying the TOPSIS method, which allows the spatial dependence to be considered in the research. The composite index calculated by means of the modified TOPSIS method allows to determine the trend in the level of the development of the phenomenon under study, assuming the impact of the spatial mechanisms. The TOPSIS method defined in that way has been applied in the spatial analysis of the situation on the labour market in Poland.
    Keywords: regional research, spatial econometrics, spatial dependence, TOPSIS method
    JEL: C21 E24 J01
    Date: 2015–04
  39. By: Christopher Hartwell (Department of International Management, Kozminski University; Institute for Emerging Market Studies, Hong Kong University of Science and Technology; Center for Social and Economic Research, Warsaw)
    Abstract: This paper looks at the effects of political volatility in transition economies to ascertain how nascent political institutions affect fledgling capital markets. Asymmetric (GJR) GARCH modeling of monthly data was taken for 21 transition economies on financial volatility, political volatility, and monetary policy to test the drivers of financial volatility in transition. The key implication from these results is that political stability needs to be tended to both in the formal realm and the informal realm in order to avoid potentially damaging financial volatility. The need for consistent political institutions remains in transition economies as much as in developed countries.
    Keywords: volatility, political institutions, transition, stock markets
    JEL: G20 O43 P30
    Date: 2015–03
  40. By: Michał Hulej; Grzegorz Grabek
    Abstract: Following Nyman (2010), the paper provides an indicator of resource utilisation (RU) for the Polish economy based on survey and labour market data. The indicator is subsequently used to identify output gap. Using real-time dataset, we find that output gap constructed in this way is revised to a similar or (in recent years) lesser extent than a measure based on the Hodrick and Prescott filter and structural approach. Also, the output gap based on the RU indicator performs comparably to other approaches as a proxy of inflation pressure: real-time data evaluation exercise reveals that RMSE of Phillips curve inflation forecasts with the RU indicator-based output gap is similar to the RMSE of equivalent specifications with alternative gap measures.
    Keywords: Principal component, Output gap, Trend-cycle decomposition, Inflation forecast, Real-time analysis.
    JEL: E32 E37
    Date: 2015

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