Tuesday, 18 March 2008

Research paper update: "China in the World Economy"

This post is an attempt to document some of the more interesting and recent academic papers looking at "the economics of China".

They also represent a backlog of papers to read for yours truly. This is where this blog takes on part research diary/part blog. However, I hope you might find some of these papers interesting. A friendly academic can be eamiled if PDFs are required and the link requires some sort of cost.


"Trade Integration in East Asia: The Role of China and Production Networks"
World Bank Policy Research Working Paper No. 4160

World Bank - EASPR
Email: mhaddad@worldbank.org
Auth-Page: http://ssrn.com/author=766424

Full Text: http://ssrn.com/abstract=969237

ABSTRACT: Production networks have been at the heart of the recent growth in trade among East Asian countries. Fragmentation trade, reflected mainly in the trade in parts and components, is expanding more rapidly than the conventional trade in final goods. This is mainly due to the relatively more favorable policy setting for international production, agglomeration benefits arising from the early entry into this new form of specialization, considerable intercountry wage differentials in the region, lower trade and transport costs, and specialization in products exhibiting increasing returns to scale. The economic integration of China has deepened production fragmentation in East Asia, countering fears of crowding out other countries for international specialization. International production fragmentation in East Asia has intensified intraregional trade but has depended heavily on extraregional trade in final goods. While production networks centered on China have contributed significantly to growth in East Asia, they also breed vulnerabilities. They have not automatically led to technology spillovers and have led to an extreme interdependence across East Asian countries.

Haddad, Mona, "Trade Integration in East Asia: The Role of China and Production Networks" (March 1, 2007). World Bank Policy Research Working Paper No. 4160 Available at SSRN: http://ssrn.com/abstract=969237


"Assessing China's Exchange Rate Regime"
NBER Working Paper No. W13100

Harvard University - John F. Kennedy School of
Government, National Bureau of Economic Research
Email: jeffrey_frankel@harvard.edu
Auth-Page: http://ssrn.com/author=20568

International Monetary Fund (IMF) - Research
Department, Centre for Economic Policy Research
(CEPR), National Bureau of Economic Research
(NBER), The Brookings Institution
Auth-Page: http://ssrn.com/author=54129

Full Text: http://ssrn.com/abstract=986950

ABSTRACT: This paper examines two related issues: (a) the implicit methodology used by the US Treasury in determining whether China and America's other trading partners manipulate their exchange rates, and (b) the nature of the Chinese exchange rate regime since July 2005. On the first issue, we investigate the roles of economic variables consistent with the IMF definition of manipulation - the partners' overall current account/GDP, its reserve changes, and the real overvaluation of its currency - but also some variables suggestive of American domestic political considerations - the bilateral trade balance, US unemployment, and an election year dummy. The econometric results suggest that the Treasury verdicts are driven heavily by the US bilateral deficit, though other variables also turn out to be quite important. On the issue of China's de facto exchange rate regime, we apply the technique introduced by Frankel and Wei (1994) to estimate implicit basket weights, adding several refinements. Within 2005, the de facto regime remained a peg to the dollar. However, there was a modest but steady increase in flexibility subsequently. We test whether US pressure has promoted RMB flexibility. We also test whether the recent appreciation against the dollar is due to a trend appreciation against the reference basket or a declining weight on the dollar in the reference basket, and suggest that they have different policy implications.


"Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China"
NBER Working Paper No. W13103

World Bank - Development Economics Group (DEC)
Email: ddollar@worldbank.org
Auth-Page: http://ssrn.com/author=230739

International Monetary Fund (IMF) - Research
Department, Centre for Economic Policy Research
(CEPR), National Bureau of Economic Research
(NBER), The Brookings Institution
Auth-Page: http://ssrn.com/author=54129

Full Text: http://ssrn.com/abstract=986953

ABSTRACT: Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreign-owned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its capital stock by 8 percent without sacrificing its economic growth (and hence could raise its household consumption and deliver a faster improvement to its citizens' living standard).


"Misallocation and Manufacturing TFP in China and India"
NBER Working Paper No. W13290

University of California, Berkeley - Department of
Economics, National Bureau of Economic Research
Email: chsieh@econ.berkeley.edu
Auth-Page: http://ssrn.com/author=114748

Stanford University - Department of Economics,
National Bureau of Economic Research (NBER)
Email: Klenow@stanford.edu
Auth-Page: http://ssrn.com/author=196490

Full Text: http://ssrn.com/abstract=1005603

ABSTRACT: Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the extent of this misallocation in China and India compared to the U.S. in recent years. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., we calculate manufacturing TFP gains of 25-40% in China and 50-60% in India.


"Big Dragon, Little Dragons: China's Challenge to the Machinery Exports of Southeast Asia"
World Bank Policy Research Working Paper No. 4297

World Bank - Jakarta Office
Email: srahardja@worldbank.org
Auth-Page: http://ssrn.com/author=516598

Full Text: http://ssrn.com/abstract=1004652

ABSTRACT: This paper investigates the extent of China's export boom in machinery and analyzes trade in components and finished machinery between China and Southeast Asia. China has increased its world market share in machinery exports. The median relative unit value of its finished machinery exports has also risen. Yet the author finds no evidence that China's expansion in the world machinery market has squeezed the market shares of Southeast Asian machinery exports. Instead, components made by Southeast Asian countries are increasing in unit value and gaining market share in China.


"The Growth of China and India in World Trade: Opportunity or Threat for Latin America and the Caribbean?"
World Bank Policy Research Working Paper No. 4320

World Bank - Development Research Group (DECRG),
World Trade Organization (WTO), University of
Geneva, Centre for Economic Policy Research (CEPR)
Email: molarreaga@worldbank.org
Auth-Page: http://ssrn.com/author=45757

World Bank - Latin America and Caribbean Region
Auth-Page: http://ssrn.com/author=233358

University of the Americas, Puebla
Email: isoloaga@mail.udlap.mx
Auth-Page: http://ssrn.com/author=371832

Full Text: http://ssrn.com/abstract=1007353

ABSTRACT: This paper studies the relationship between the growth of China and India in world merchandise trade and Latin American and Caribbean commercial flows from two perspectives. First, the authors focus on the opportunity that China and India's markets have offered Latin American and Caribbean exporters during 2000-2004. Second, empirical analyses examine the partial correlation between Chinese and Indian bilateral trade flows and Latin American and Caribbean trade with third markets. Both analyses rely on the gravity model of international trade.
Econometric estimations that control for the systematic correlation between expected bilateral trade volumes and the size of their regression errors, as well as importer and exporter fixed effects and year effects, provide consistent estimates of the relevant parameters for different groups of countries in Latin America and the Caribbean. Results suggest that the growth of the two Asian markets has produced large opportunities for Latin American and Caribbean exporters, which nevertheless have not been fully exploited. The evidence concerning the effects of Chinese and Indian trade with third markets is not robust, but there is little evidence of negative effects on Latin American and Caribbean exports of non-fuel merchandise. In general, China's and to a large extent India's growing presence in world trade has been good news for Latin America and the Caribbean, but some of the potential benefits remain unexploited.


How does FDI affect China? Evidence from industries and provinces

Jimmy Rana,
Jan P. Voona and Guangzhong Lic


Using the latest panel data from 19 industries and 30 provinces in China, we found it is not true that more FDI necessarily brings about more output growth across the board. Local industries without foreign participation lose while those with some participation gain from the inflow. Provinces in western and central regions lose while those in the eastern and coastal regions appear to be the major beneficiaries. While the net effect of FDI is still positive, the regional disparity has been growing. It casts doubt on the rationale of haphazard and lavish policies to compete for FDI in China. Journal of Comparative Economics 35 (4) (2007) 774–799.

Keywords: FDI; Economic growth; Spillover; Industries; Provinces; Net impacts

JEL classification codes: C5; F21


"The Shifting Structure of China's Trade and Production"
IMF Working Paper No. 07/214

Contact: LI CUI International Monetary Fund (IMF)
Email: lcui@imf.org
Auth-Page: http://ssrn.com/author=343401

Co-Author: MURTAZA H. SYED International Monetary Fund (IMF)
Email: msyed@imf.org
Auth-Page: http://ssrn.com/author=907780

Full Text: http://ssrn.com/abstract=1033207

ABSTRACT: This paper uses disaggregated trade data to assess how the expansion of China's production capacity and its changing production structure may be affecting its trade linkages with other countries. It finds that China is moving away from traditional assembly operations in its processing activities and its exports have started to rely more on domestically sourced components. In turn, China's imports and exports have begun to delink, with increased domestic sourcing contributing to the recent increase in its trade balance. In addition, as China moves up the value chain, both its imports and exports have become more sophisticated than in the past. As a result of these shifts, China may be becoming more exposed to fluctuations in the strength of the global economy, and changes in its exchange rate could have a bigger impact on the trade balance and the domestic economy than commonly believed.


"What Drives China's Growing Role in Africa?"

IMF Working Paper No. 07/211

International Monetary Fund (IMF) - European
Email: jwang1@imf.org
Auth-Page: http://ssrn.com/author=348512

Full Text: http://ssrn.com/abstract=1012994


What role does China play in Africa's development? What drives China's increasing economic involvement in the continent? This paper attempts to provide a quantified assessment of China's multifaceted influence as market, donor, financer and investor, and contractor and builder. Though in the past official development aid predominated, the paper argues that government policies, markets for each other's exports, Africa's demand for infrastructure, and differences in China's approach to financing have together moved commercial activities - trade and investment - to the center of China-Africa economic relations. While China's public sector, state financial institutions in particular, has been instrumental in the process, the influence of its private sector is increasing. Implications for the future of China-Africa economic relations are briefly noted.


"China's Exports and Employment"

NBER Working Paper No. W13552

ROBERT C. FEENSTRA, University of California, Davis - Department of Economics, National Bureau of Economic Research (NBER)
Email: rcfeenstra@ucdavis.edu
CHANG HONG, International Monetary Fund (IMF)
Email: chong@imf.org

Dooley et al (2003, 2004a,b,c) argue that China seeks to raise urban employment by 10-12 million persons per year, with about 30% of that coming from export growth. In fact, total employment increased by 7.5-8 million per year over 1997-2005. We estimate that export growth over 1997-2002 contributed at most 2.5 million jobs per year, with most of the employment gains coming from non-traded goods like construction. Exports grew much faster over the 2000-2005 period, which could in principal explain the entire increase in employment. However, the growth in domestic demand led to three-times more employment gains than did exports over 2000-2005, while productivity growth subtracted the same amount again from employment. We conclude that exports have become increasingly important in stimulating employment in China, but that the same gains could be obtained from growth in domestic demand, especially for tradable goods, which has been stagnant until at least 2002.


"Economic Growth Across Space and Time: Subprovincial Evidence from Mainland China"

BOFIT Discussion Paper No. 21/2007

DECLAN CURRAN, University of Hamburg - Faculty of Economics and Business Administration
Email: curran@econ.uni-hamburg.de
MICHAEL FUNKE, University of Hamburg - Faculty of Economics and Business Administration, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: funke@econ.uni-hamburg.de
JUE WANG, Bank of Finland - Institute for Economies in Transition (BOFIT)
Email: juewang123@gmail.com

This paper considers the persistent differences in economic performance across Chinese regions. We introduce a new county- and city-level dataset that spans all of mainland China and provides a detailed view of Chinese regional growth over the period 1997-2005. Non-parametric kernel density estimation is employed to establish the cross-sectional GDP per capita distribution, and the distributional dynamics are investigated using the probability matrix technique and associated stochastic kernel estimator. A set of explanatory variables is then introduced, and several regressions are run to test for conditional-convergence and to pinpoint influential factors for economic growth across counties and cities.


"What Accounts for the Rising Sophistication of China's Exports?"

NBER Working Paper No. W13771

ZHI WANG, U.S. International Trade Commission
Email: Zhi.Wang@usitc.gov
SHANG-JIN WEI, Columbia Business School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR), International Monetary Fund (IMF)
Email: shangjin.wei@columbia.edu

Chinese exports have become increasingly sophisticated. This has generated anxiety in developed countries as competitive pressure may increasingly be felt outside labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the contributing factors to China's rising export sophistication. Somewhat surprisingly, neither processing trade nor foreign invested firms are found to play an important role in generating the increased overlap between China's export structure and that of high-income countries. Instead, improvement in human capital and government policies in the form of tax-favored high-tech zones appear to be the key to the country's evolving export structure. On the other hand, processing trade, foreign invested firms, and government-sponsored high-tech zones all have contributed significantly to raising the unit values of Chinese exports within a given product category.


Daniel Turel, Kane Venture Group said...

I'd just like to add that the best paper I've read on China in the last month is from the China Law and Government Journal from March/April 2007. The article is called: San Guo Yan Yi: The United States, China, and Japan and is a translation of a 2005 interview with China's Lieutenant General Liu Yaozhou. This dynamic article is a collection of General Liu's thoughts on the US' current conquest of Iraq and search for military and economic hegemony on the world's oceans, as well as why the US may actually be more afraid of Japan than China. There is definitely a lot of rhetoric and misdirection in this piece, but he makes so many good points and it is refreshing to get a look at some of the stream of consciousness thoughts of one of China's highest military figures.

coy.fuentes@gmail.com said...

It's really a wonder how China's economy can either impress us, or feel otherwise. But nonetheless, they are still one of the better countries . Thanks for sharing, and I might be reading some of your backlogs some day.

Whenever I see research papers like these, it really gets my time off from work. It's like watching the news.

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