Wednesday 23 February 2011

A Global View of Productivity Growth in China

There is a lot written about the "impact of China" on pretty much everything. What about productivity in the rest of the world from China's rise? Gains from trade means productivity spillovers should benefit us all but do they?

A new paper by Chang-Tai Hsieh and Ralph Ossa (NBER) provide some numbers.

They find that the average real income of the rest of the world INCREASED by a cumulative 0.48% from 1992-2007 due to China's productivity growth? This represents 2.2% of total income gains to the world.

What does this really mean?

Where is the bad news?

A Global View of Productivity Growth in China

Chang-Tai Hsieh
University of Chicago - Booth School of Business

Ralph Ossa
affiliation not provided to SSRN

February 2011

NBER Working Paper No. w16778

We revisit a classic question in international economics: how does a country's productivity growth affect worldwide real incomes through international trade? We first identify the channels through which productivity shocks transmit in a model featuring inter-industry trade as in Ricardo (1817), intra-industry trade as in Krugman (1980), and firm heterogeneity as in Melitz (2003). We then estimate China's productivity growth at the industry level and use our model to quantify what would have happened to real incomes throughout the world if nothing but China's productivity had changed. We find that average real income in the rest of the world increased by a cumulative 0.48% from 1992-2007 due to China's productivity growth. This represents 2.2% of the total income gains to the world.


Why are Saving Rates so High in China?

This is an age old question that has been looked at many times before this time in a NBER paper (so it must be of a decent quality).

The simple answer is the lack of a welfare state leading to a lot of "rainy day" saving and also the importance of education where investment in an often single child can cost a relative fortune and needs to be saved for.

The Chinese are rapidly learning how to be good consumers and follow the West in wanting lots of useless trinkets, new clothes and gadgets. The saving rate is sure to fall over time as materialism kicks in.

"Why are Saving Rates so High in China?"
NBER Working Paper No. w16771

JUNSEN ZHANG, Chinese University of Hong Kong (CUHK) - Department of Economics, Institute for the Study of Labor (IZA)

SHAOJIE ZHOU, Tsinghua University

In this paper, we define "The Chinese Saving Puzzle" as the persistently high national saving rate at 34-53 percent of gross domestic product (GDP) in the past three decades and a surge in the saving rate by 11 percentage points from 2000-2008. Using data from the Flow of Funds Accounts (FFA) and Urban Household Surveys (UHS) supplemented by the findings from existing studies, we analyze the sources and causes of China's high and rising saving rates in the government, corporate, and household sectors. Although the causes of China's high saving are complex, we suggest that the evolving economic, demographic, and policy trends in the internal and external environments of the Chinese economy will likely lead to a decline in national saving in the foreseeable future.


Monday 14 February 2011

150 years of foreign trade in China

As an avid reader of Chinese history the relationship between China and the western powers over the last 150 has been interesting to say the least.

It will be interesting to see how the relationship between politics and trade has been handled.

They have some interesting data and arrive at a rather predictable conclusion.

"China's Foreign Trade: Perspectives from the Past 150 Years"

CEPR Discussion Paper No. DP8118
WOLFGANG KELLER, University of Colorado, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)
BEN LI, University of Colorado at Boulder - Department of Economics
CAROL HUA SHIUE, affiliation not provided to SSRN

This paper studies the trade of China in the past 150 years, starting from the first opening of China after the Opium War. The main purpose of the paper is to identify what is (and was) China's 'normal' level of foreign trade, and how these levels changed under different trade regimes, from 1840 to the present. We present new evidence on China's foreign trade during the treaty port era (1842-1948), drawn from disaggregated trade data collected by the Chinese Maritime Customs Service, that yields important findings for current research. First, although the volume of foreign trade remained limited initially, there was a notable expansion in the diversity of products, with many new goods being imported into China. Second, the regional diffusion of foreign goods through China was greatly facilitated by the expansions of the port system. Third, the importance of Hong Kong as an intermediary in China's trade has undergone long-term fluctuations suggestive of learning effects. China's recent wave of liberalization has led by the early 1990s to a trade level comparable to the high of the 1920s. While much of China's recent growth in world trade is in line with her income growth, there is no doubt that China's trade openness today, comparable by some measures to Denmark's, is a stunning reversal relative to the pre-1978 and also the pre-1840 period. The paper emphasizes the roles that history and institutional change have played in this.


The value of a degree in China

This week I will post a series of posts on higher education in China. With more and more Chinese nations choosing to study abroad one of the most obvious questions is what the returns to education look like.

This interesting article in the Wallstreet Journal suggests - not a lot.

The key here is the quality of the degree. Here it is suggested that only the top 50 is good enough. This also counts when studying abroad. Those wishing to study in the UK for example must enter one of the top 20 Universities. Some information is provided in the sidebar of this blog for economics/finance.

Value of a Chinese College Degree: $44? [Wallstreet Journal]
American college students facing the misery of an anemic post-graduation job market have company in an unlikely-seeming place: China.

Despite entering a robust economy that seemed to weather the financial crisis as if were it a middling squall, China’s college graduates on average make only 300 yuan, or roughly $44, more per month than the average Chinese migrant worker, according to statistics cited over the weekend by a top Chinese labor researcher and reported today by the Beijing Times (in Chinese).

“It’s the first time China has faced such a situation,” the paper quoted Cai Fang, head of the Chinese Academy of Social Science’s Institute of Population and Labor Economics, as saying Saturday at a conference on Chinese youth. “It’s hard to say how long this situation will last.”

By Mr. Cai’s calculations, college graduates have consistently earned around 1,500 yuan a month since 2003. Migrant workers, meanwhile, have seen their monthly wages rise from an average of 700 yuan to 1,200 yuan over roughly the same time period, MR. Cai said, according to the Beijing Times.

China has faced a surfeit of college graduates in recent years, thanks in large part to an enrollment boom that has seen the university student population swell by as much as 30% year-to-year over the last decade. High levels of unemployment among recent graduates—an estimated one-third of the country’s 5.6 million 2008 graduates failed to find work in their first year out of school—are a major drag on the average wage figures. Meanwhile, labor shortages in manufacturing and construction have enabled migrant workers to demand higher and higher wages.

In a country where a highly competitive pursuit of higher education routinely forces families to spend fortunes, and children to sacrifice their childhoods, such statistics have to have many wondering, why bother?

In the nearly 1,800 comments the report has attracted at the Chinese news portal Sohu, that’s precisely what many are doing. While some readers took the news with a certain post-Communist irony (“Our society has made progress–no longer does a diploma determine social status,” wrote one), the vast majority were cynical about the value of a college education. “If you don’t test into one the top 50 universities, don’t bother doing to school,” one reader advised. “It’s useless.”

Complained another: “Of all universities in China, how many actually cultivate students? It’s all for money. What do college students learn? It doesn’t even compare to a high school education from before.”

Are Chinese degrees really so worthless? Not necessarily, according to Mr. Cai. Like wine, the wages of most college graduates improve significantly over time. But, Mr. Cai said, myopia is already starting to set in, particularly for working-class students for whom the combination of tuition and lost wages can seem too large a sacrifice.

“First it’s ‘Why bother making your kids study?’ or ‘Why bother going to university?’” the report quotes Mr. Cai saying. “Then it’s ‘Why bother going to high school?’”

One possible advantage Chinese degree-holders have over their American counterparts: In China, there’s no shame in living in your parents’ basement after graduation.

CORRECTION: An earlier version of this post misstated the number of 2008 graduates who failed to find work in their first year out of college at nearly 6 million. That is the total number of new graduates in 2008. The number who failed to find work is roughly one-third of the total.

H/T. Best Colleges Online