Summary： China's reform and opening up began in 1978, and has thus been going on for 40 years. It began with the rural land system, which has not only had a profound impact to date, but will continue to affect China's future, and to a certain extent the world's.
This paper attempts two tasks. First, it aims to summarize the practice of rural reform and development in China. By investigating numerous reform proposals and actions, and identifying important central government documents on agriculture, rural areas, and farmers, this paper divides rural development in China since 1978 into five different strategic stages, which are basically in line with the tenures of high-level leadership groups in China. During these five stages, five development strategies were implemented: these strategies focused on household contract system and grain output; simultaneous development of agriculture and township enterprise; reform of grain circulation system and small-town development; coordination of urban-rural development and new rural construction; and land system reform (“new land reform”) and rural revitalization. The key measures in these five stages are described and explained, especially for rural revitalization, in terms of scientific understanding, relationship with previous strategies, impact on the future of rural China, and implementation problems encountered. The division of these five stages, the summary and refinement of five development strategies and the analysis of the coherence and difference between strategies are the contributions of this paper.
The second task is a systematic theoretical summary and analysis of the reform and development of the rural economic systemin conjunction with several major events of the past 40 years, and to explain the relevant theories, their basis, and the innovations they introduced. The main points are as follows. (1) The paper concludes that historical materialism and the theory of socialism at the primary stage are the theoretical basis for the reform and development of the rural economic system, which was characterized by the implementation and continuous improvement of the household contract system. (2) The late 1970s collapse of the “people's commune system”, an inefficient Nash equilibrium that existed in China for a long period of time, is examined. (3) China's rural household land contract system has proved and falsified the incomplete contract theory; this paper instead proposes an “open contract theory” and creates a new set of concepts of “passive contract incompleteness” and “active contract incompleteness”, arguing that China's household contract system is an open contract without adverse selection and moral hazard. (4) This paper hypothesizes that land concentration effect differentiation explains why the current land transfer in China will have little effect in the era of agricultural economy. (5) It offers a theoretical elucidation to the questions of “compensation or not” and “what's the compensation standard” of land expropriation by local governments in China. (6) It considers the “separation of rural ownership rights, contract rights, and management rights” an important theoretical innovation, and explains why it is more suitable than privatization of rural land property in China. (7) It explains theoretically why the period of land contract in the new era in China has been extended for another 30 years but will not remain unchanged over the long term. (8) It evaluates the policy of “direct subsidy for grain production”, which has been implemented for over a decade in China.
In a word, this paper contributes to understanding economic growth and social progress in Chinese rural areas, and the role played by the central government's development strategies. It also contributes to the theoretical explanation of economic growth in China. The stylized facts in China have confirmed some economic theories and rejected others. The development of theory always occurs in relation to practical problems. The many important practical problems of China's reform and development called for theoretical innovations from Chinese economists, who in turn made a number of key theoretical contributions and will continue to do so.
Keywords： Rural Development Strategy in China; Five Stages; Theoretical Summary; Rural Revitalization Strategy
JEL Classification： O13, O18, P25

Summary： The construction of the political economy of socialism with Chinese characteristics is an inevitable requirement not only for China's economic development in a new epoch, but also for a systematic interpretation of the Chinese path from a theoretical perspective. The present social and economic changes in international society and the deepening of reform and opening up in China require theoretical innovation in the political economy of socialism with Chinese characteristics. In addition, the evolution of nucleus categories in political economy also calls for further innovation. To construct the political economy of socialism with Chinese characteristics, it is advisable to consult Marx's Das Capital and develop a research methodology based on historical materialism.
Marx in Das Capital argued that economic categories indicate the duality of the relationship between commodities and humans. Inspired by this duality proposed by Marx, we propose that a complete construction of the political economy of socialism with Chinese characteristics must also face the question of duality. It is essential to review the practical experience of China's reform and opening up during the last 40 years and systemically extract new economic elements and patterns; however, the practice of socialism with Chinese characteristics constantly encounters new contradictions and problems, which poses major challenges to the original constituents of political economy. Whether we can find solutions to the problems and settle the contradictions China faces is a fundamental issue in the development of socialism with Chinese characteristics.
Historical facts have proven that mainstream Western economics have misdirected the course of modernization in developing countries. Today's economic phenomenon in China has global significance. Explaining Chinese economic phenomena means explaining global phenomena, and finding solutions to the economic problems China faces at present means settling worldwide economic problems. Therefore, a theoretical explanation and macro account of Chinese economic problems can not only contribute to the development of theoretical economics on a global level, but more importantly promote global economic development, allowing developing countries to catch up with the “China Express”. Historical materialism is the foundation of Marxist political economy. Marx developed historical materialism to lend his initial brilliant insight to a scientific subject. Therefore, full comprehension of China's modernization requires investigating global political and economic patterns and their historical development. On a deeper level, it means understanding the nucleus category of political economy in the current context, and paying attention to the significance in the label of Chinese characteristics, which brings forth innovation and vitality in the political economy of socialism with Chinese characteristics. Moreover, the most remarkable feature of its creative development lies in its “terminological revolution”. Therefore, the core category and key concepts of Chinese political economy must bring forth a Chinese Discourse in the new era.
The experience of China's political and economic development after the reform and opening up has proved that foreign political and economic doctrine and theories should be properly drawn on and absorbed. Moreover, the construction of the political economy of socialism with Chinese characteristics should be based on China's economic development practice and its successful market economy experience. Thus, the following four perspectives need to be focused on: the dialectical unity of the Chinese path and global history, the organic combination of historical materialism and problem orientation, the elucidation of the core categories of political economy over time, and the exploration of ideological resources in China's successful market economy.
Keywords： Political Economy; Das Capital; Historical Materialism; The Political Economy of Socialism with Chinese Characteristics (PESCC)
JEL Classification： P16, P26, P48

Summary： China's economy has experienced rapid growth since the reform and opening-up began forty years ago. One unique feature of the Chinese economy is the high and still-increasing household savings rate. According to the World Bank's data, between 2000 and 2015, China's household savings rate (defined as the ratio of household disposable income less household consumption to household disposable income) increased steadily from less than 28 to over 37 percent, which is one of the highest rates in the world. Over the same period, income inequality among Chinese households as measured by the Gini coefficient also rose from 0.42 in 2000 to 0.49 in 2010. Although it slightly decreased to 0.47 in 2015, China's household income inequality is still among the world's worst. Are these two co-existent, unique features of the Chinese economy correlated? In this paper, we examine the extent to which the interaction between income inequality and liquidity constraints can explain the high household savings rate in China.
First, we construct a simple two-period model that links the household savings rate to income inequality and liquidity constraints. In this model, households are assumed to be different in two dimensions: (i) heterogeneity in initial wealth and income; (ii) heterogeneity in time preference and thereby in subjective discount factor. In addition, we assume that households may face liquidity constraints. Given a household's type of income and discount factor, and whether the liquidity constraint is binding, the consumption and savings rate are endogenously determined in the model. The model provides several implications: (1) the rich save more; (2) the proportion of constrained households among the poor is higher than among the rich; (3) liquidity constraints increase the household savings rate; (4) when income inequality increases, the rich save even more, while at the same time the poor also save more due to binding liquidity constraints, and thus the aggregate household savings rate rises.
Second, using three sources of independent, large, nationally representative household survey data, the China Household Finance Survey (CHFS), China Family Panel Studies (CFPS), and Chinese Household Income Project (CHIP), we present data about the distribution of China's household savings rate, the savings rate and credit constraints, and the county-level aggregate savings rate and Gini coefficient.
Finally, we conduct a formal empirical analysis and provide consistent and comforting micro-level evidence. Specifically, (1) by regressing the household savings rate on income quintile dummies, we find that the rich do save more. The household savings rate for the top 20% income group is 49%—72% higher than for the bottom 20% income group. (2) We use probit regression to examine whether the poor are more likely to face liquidity constraints. The results indicate that the probability of liquidity constraint for the bottom 20% income group is 15%—28% higher than for the top 20% income group. (3) Using a difference-in-difference (DID) design, we estimate the effects of liquidity constraints on the household savings rate and find they lead to a significant increase of 5%—13% in the household savings rate. (4) We address the question of the general equilibrium effect on the aggregate household savings rate resulting from a rise in income inequality by performing a cross-sectional regression of the county-level aggregate household savings rate on the county Gini coefficient. We find that a Gini coefficient increase of 0.01 leads to a significant increase of 0.2% in the savings rate. (5) By estimating a reduced form consumption function for the income quintiles, we provide empirical evidence that the marginal propensity to consume out of transitory income for the bottom 20% income group is 600—900 yuan out of 1000 yuan, which is much higher than the top 20% income group's 200—400 yuan.
This paper is not only helpful in understanding the “Chinese savings puzzle”, but also has significant policy implications. If income inequality and liquidity constraints are key reasons for the high aggregate household savings rate, drastically different policies would be needed to reduce this rate. For example, the government could design income redistribution programs (such as EITC) to reduce income inequality or devote more resources to support credit market development. An economic policy that tackles income inequality would lower the aggregate savings rate, thus encouraging economic transition and growth. In particular, given the intensifying trade war between the US and China, it is important to expand domestic household consumption to ensure sustained economic growth and development.
Keywords： Household Savings Rate; Income Inequality; Liquidity Constraints
JEL Classification： E21, D30, O53

Summary： As the structural problems implicit in the early stages of China's economic growth have emerged, there has been a subtle shift in the investing and financing mechanisms of China's real sector (that is, non-financial firms). Since 2006, the real investment rate of real firms has been declining, while the proportion of financial investment has gradually increased, and the leverage of the financing side has remained high. To encourage real investment and reduce leverage among real enterprises, China has introduced a series of economic policies (especially supply-side structural reform measures). The economic policy uncertainty implied by the adjustment amplitude and frequency of macroeconomic policy has a significant impact on the investment and financing decisions of various enterprises, but this kind of influence is usually more hidden, and has thus received little attention to date among researchers.
This paper examines the decision-making mechanism for investing and financing among Chinese real sector firms, based on economic policy uncertainty and the heterogeneity of financing constraints. To summarize, this paper focuses on the following three interrelated issues. First, how do firms make investment decisions in response to economic uncertainty? We pay attention to different results for different firms with different financing constraints, and discuss their implications. Second, given the important role of economic policy uncertainty, how do firms dynamically adjust their financing decisions (especially cash holdings and leverage)? In particular, we want to examine whether there are significant differences in financing constraints for different firms. Third, through which channels does economic policy uncertainty affect the investing and financing decisions of firms, and ultimately lead to different financing constraints on enterprises as they make differentiated responses? Studying these three problems not only helps us understand changes in firms' investing and financing decisions in response to macroeconomic policy, but is also of great significance for understanding the optimal path of macro-level supply-side structural reform from the micro level.
We introduce economic policy uncertainty into a three-period investing and financing model for firms. We also classify Chinese real sector firms based on different financing constraints and explain the differential impacts of economic policy uncertainty on the investing and financing decisions of different firms. Our empirical analysis utilizes quarterly data for China's non-financial firms listed in the A-share stock market from 2007 to 2017. The theoretical model and empirical results consistently show that, regardless of firms' financing constraints, an increase in economic policy uncertainty leads to the decline of real investment (i.e. fixed asset investment), but the adjustment of financing decisions depends on the degree of financing constraints that firms face. Specifically, the decline in leverage and upward adjustment of cash holdings in firms with low financial constraints is significantly weaker than in firms with high financial constraints. Further mechanism analysis shows that economic policy uncertainty affects enterprise investing and financing decisions through future cash flow expectations, fixed asset yields, and cash flow uncertainties, but the impact on debt financing costs is not statistically significant.
Based on our theoretical analysis and empirical results, this paper puts forward the following policy suggestions. First, economic policy adjustment requires greater attention to amplitude and frequency to avoid uncertainty, and must take market self-regulation into account. Second, in the process of supply-side structural reform, it is important to focus on adjusting the leverage ratio of state-owned enterprises and large enterprises, especially zombie enterprises, rather than private enterprises and small enterprises. Third, the government must consider the differences between different financing constraints for different economic components in particular regions, to promote the growth of real enterprise differentiation in China.
Keywords： Real Enterprise; Economic Policy Uncertainty; Investing and Financing Decisions; Financial Constraints
JEL Classification： G21, G31, E22

Summary： The growth of shadow banking has dramatically changed China's social financing structure. During the period from 2003 to 2013, the share of shadow bank lending in aggregate financing increased from 8% to 30%. Considering the important role that shadow banking played in the 2008 financial crisis, many researchers have begun to examine its role in the transmission of economic fluctuations. However, shadow banking in China differs from its Western counterpart in that commercial banks still play a core role in it. Because asset securitization services and financial derivative markets in China are far less extensive than in Western countries, China's shadow banking system is heavily dependent on traditional commercial banks. Commercial banks transfer their credit assets outside the balance sheet in various ways, such as cooperating with trust companies, and offer these services to customers whose loan demands cannot be satisfied by the formal banking system due to regulatory limits. These characteristics imply that China's shadow banking system may have a unique dynamic.
This paper makes two major contributions. First, through an empirical study, we identify the business cycle properties of China's shadow banking system; second, from the view of credit constraint, we build a theoretical model based on the institutional characteristics of China's banking system to explain the dynamics of shadow banking and evaluate its impact on monetary policy transmission.
To overcome the “price puzzle” and obtain a robust estimation, we use a structural VAR model with sign restrictions to identify the dynamics of shadow banking. The empirical results show that, in contrast to commercial banks, China's shadow banking system operates in a counter-cyclical direction. Monetary policy contraction leads to a decrease in commercial bank lending and, surprisingly, a significant increase in shadow bank lending.
To understand the mechanism behind shadow banking dynamics, we formulate a DSGE model with credit constraints to explain its counter-cyclical property. It turns out that monetary policy shock and loan to deposit ratio (LDR) regulation shock are the main driving forces behind China's shadow banking dynamics. These two shocks transmit through two credit constraints faced by commercial banks and produce the counter-cyclical fluctuation of shadow banking.
The first credit constraint is a standard capital adequacy constraint. All bank assets face such regulation. However, when calculating the capital adequacy ratio, the risk weight of off-balance-sheet assets is set much lower than that of on-balance-sheet assets, which results in regulatory arbitrage. Under a tightening monetary policy shock, commercial banks react by transferring credit off their balance sheet to relieve the pressure of capital adequacy constraints, leading to an increase in shadow bank lending. The second credit constraint is a unique LDR constraint. For commercial banks, only on-balance-sheet assets are constrained by LDR regulation. Under a negative LDR regulation shock, commercial banks again transfer credit through shadow banking, leading to a significant decrease in commercial bank lending and an increase in shadow bank lending. Therefore, credit constraint is the key to understanding the counter-cyclical fluctuation of shadow banking in China.
In addition, we evaluate the impact of shadow banking on monetary policy transmission. By counter-factual experiment, we find that the existence of shadow banking buffers the decrease in inflation and output. China's shadow banking was born out of and grew rapidly during the period of monetary policy tightening, thus weakening the effectiveness of monetary policy. Nonetheless, although we do not include financial risk in our model, we cannot neglect the possibility that commercial banks' regulatory arbitrage may accumulate financial risk through shadow banking. Model simulation also shows that counter-cyclical fluctuation can be alleviated by direct regulation of shadow banking, which is consistent with the Chinese government's contemplation of new measures.
Keywords： Credit Constraint; Shadow Banking; Monetary Policy Transmission
JEL Classification： E32, E44, E52

Summary： As a country grows richer, the final demand structure and the industrial structure show a salient common trend. The existing literature has overlooked the role of final demand structure in structural transformation. In this paper, we focus on the mechanism of the sectoral composition of final demand, which is measured by the sectoral share of value added as inputs to consumption, investment, and net exports.
We show first that a country's consumption rate declines with the level of development, while the investment rate rises until a certain point then slightly decreases. We then calculate the sectoral composition of final demand using global input-output tables, based on data from the World Input-Output Database. We find that the share of manufacturing in consumption in most countries shows an inverted-U shaped trend in relation to the level of development, and the share in investment shows a sectoral decline. Moreover, the share of manufacturing in investment is much larger than in consumption. We pay particular attention to the Chinese economy during the reform era, and find a similar trend. These facts imply that the evolution of final demand structure alone can affect structural transformation and in turn productivity growth.
To quantitatively investigate the mechanism of final demand structure, we build a standard multi-sector growth model with an investment production function that employs sectoral outputs as intermediate inputs.The model not only features the traditional Baumol effect and Engel effect, but also incorporates the mechanism in which final demand structure affects structural transformation and productivity growth. Moreover, it allows us to decompose the Baumol effect and Engel effect into the mechanism of consumption and investment.
We apply the model to China's economy. We calculate the sectoral composition of consumption and investment in China using the KLEMS data. We estimate the parameters of the utility function and the investment production function using iterated feasible generalized nonlinear least square estimation. We find that the income elasticity of demand for consumer goods and the output elasticity of demand for investment goods are diverse for different sectoral outputs, which in turn determines the trend of the sectoral composition of consumption and investment as the total output grows larger.
The model succeeds in generating the process of structural transformation in China. We perform counter-factual experiments accordingly, and find that the mechanism of final demand structure is indeed significant. The magnitude of the effects on structural transformation and productivity growth is larger than that of the Baumol effect, though smaller than that of the Engel effect. The Baumol effect slightly decreases the effects of final demand structure, while the Engel effect increases its effects on the employment share of manufacturing and services. Though the Engel effect in investment is smaller than in consumption, it is still significant. We also find that the decline of the investment rate causes a fall in manufacturing employment share, which hinders productivity growth. However, because the Engel effect in investment shrinks with economic growth, the effect of this channel will decrease.
We further extend the model to a dynamic model by incorporating savings decisions, so the investment rate becomes endogenous. To evaluate the role of final demand structure, we perform a counter-factual simulation by changing the value of the inter-temporal elasticity of substitution because it directly affects the investment rate. We find that the effects of final demand structure on structural transformation remain significant. Thus, the main result of the static model is robust.
Previous studies mainly explain structural transformation by focusing on changes in the sectoral composition of consumption. This paper adds a new mechanism to the literature by proposing the relationship between final demand structure from the demand side and industrial structure from the supply side. The policy implication is that China's government should pay particular attention to this relationship, even when it mainly focuses on supply-side structural reform.
Keywords： Structural Transformation; Final Demand Structure; Productivity
JEL Classification： O11, O14, O41

Summary： Compared with overground infrastructure, underground infrastructure is often neglected by city governments all over the world. For example, drainage systems, which are less visible than roads and bridges, face deliberate underinvestment in both developed and developing countries. China is no exception. Why are political officials willing to invest more in overground public projects than in underground ones? Mani & Mukand (2007) argue that the answer to this question lies in the difference in the visibility of these public projects. We argue in this paper that the logic of the explanation offered by Mani & Mukand (2007) can be easily applied to an authoritarian regime like China. The promotion of city officials depends on objective and subjective performance evaluations which are both subject to the visibility constraints faced by the voters in Mani & Mukand's (2007) model. Therefore, a “visibility bias” is also likely to occur in Chinese cities, with city officials tending to devote more fiscal resources to visible public goods and less to invisible ones.
Based on this theoretical insight, this paper empirically investigates the effect of the political incentives of city officials on the provision of public urban projects with different visibilities. We define “visible fiscal expenditures” as maintenance and construction expenditures on roads, bridges, landscaping, and sanitation. Maintenance and construction expenditures on the water supply, gas supply, and sewerage systems are defined as “invisible expenditures”. Using a large city-level dataset, we find that there is an inverse U-shaped relationship between city officials' tenure and visible expenditures. The fiscal expenditures on visible public projects start to increase from the first year of holding office and peak in the third year of a city official's term, which is typically a critical timing for performance evaluations. This relationship, however, does not show up in invisible expenditures. We separate the entire sample of city officials into two subsamples—those younger than 55 and those older than 55. The regression analysis based on these two subsamples shows that younger city officials tend to invest even more resources into visible public projects early in their terms, but again there is no significant relationship between their terms and expenditures on invisible projects. For officials older than 55, we do not observe any significant correlation between their time in office and expenditures on visible public projects.
This paper contributes to the literature in the following ways. First, our study highlights the important role of subjective performance evaluations aided by field visits and interviews through which the visibility of performance projects kicks in but has been ignored in the literature. Second, our study contributes to the strand of the literature which investigates the negative effect of China's GDP-performance-oriented political tournaments. Our paper finds that even in the areas of public goods commonly neglected by local officials, city officials respond more strongly to more visible projects, such as landscaping and sanitation, than to less visible projects, such as sewerage systems. This evidence suggests that the visibility of government efforts is a new angle to look at when investigating the effect of the political incentives of local officials on the Chinese economy. Finally, our paper is closely related to the growing literature investigating the effects of local officials' characteristics, especially tenure and age, on regional performance. We add to this literature by uncovering the impacts of the city officials' term and age on the allocation of fiscal resources to visible and invisible projects.
This paper has important policy implications. The Chinese central government should redesign performance evaluation systems to rebalance the incentives of local officials across economic and social areas of responsibility. It is important to place accountability on local officials that spans beyond their terms and draws their attention more to long-run development.
Keywords： Political Incentive; City Construction; Public Goods; Visibility
JEL Classification： H41, P16, P25

Summary： Improving the information efficiency of the securities market has been an important area of research. The implementation of macroeconomic policies and the current situation of government intervention have a tremendous impact on corporate value at the micro level. This impact means that there is value relevance between corporate value and policy information. Therefore, under China's institutional background, we cannot explore promoting the information efficiency of the securities market without studying macro policies or government behaviors.
From the perspective of information efficiency theory, government behaviors under imperfect property rights may result in more uncertainty, which lowers investors' information arbitrage and increases the ratio of noise in transactions. Furthermore, it improves the stock price synchronicity of the securities market and reduces information efficiency. However, macro policy information has a lower cost of acquisition, and its direction of influence is explicit. With these two benefits, informed traders can conduct arbitrage transactions according to cost-benefit principles. Thus the macro information is embedded into stock prices and information efficiency improves. Clearly, whether government behaviors improve stock price synchronicity relies on the actual institutional background of government behaviors. When it rests on a specific institutional background, the relationship between government behaviors and stock price synchronicity under information efficiency theory can be clarified, and research on improving the information efficiency of the securities market can make progress.
The universality and representativeness of China's execution of industrial policies provide an ideal research perspective on the effects of government behaviors. This paper examines whether the release and execution of industrial policies improves stock price synchronicity. Based on China's situation of industrial policy development and implementation, this paper analyzes the influence of industrial policies on stock price synchronicity and information efficiency. We believe that the impact of industrial policies on micro business individuals is heterogeneous. Furthermore, this heterogeneity causes changes in actual corporate activities and leads to an increase in arbitrage transactions and improvement of the information environment. In this case, the release and execution of industrial policies leads to a decline of stock price synchronicity rather than an increase. This paper uses industrial policy data from the 11th Five-Year Plan to the 13th Five-Year Plan for empirical tests to verify this corollary. To be more specific: first, compared with companies without industrial policy support, the stock price synchronicity of companies with support decreases when industry policy is declared, the phenomenon is more evident when the degree of support is stronger. Second, cross-sectional analysis shows that these results mainly occur with firms followed by more analysts, held by more institutional investors, or with more media reports. Third, the role of institutional investors as an information intermediary mainly appears in mutual funds, insurance funds, and security funds but not with QFII.
This paper makes several important contributions to the literature. First, it provides direct evidence that government behaviors may impact stock price synchronicity. The prior literature mainly explored the channel of lowering stock price synchronicity from the perspective of information disclosure, corporate governance, and so on. This paper fills this gap in the literature to a degree. In addition, we provide an amendment to information efficiency theory. From this theoretical viewpoint, under an inferior property rights protection regime, government behaviors may improve stock price synchronicity and suppress information arbitrage. The findings of this paper contradict this view to some extent, and will benefit future studies of stock price synchronicity. Furthermore, this paper analyzes the impact of industrial policies on stock price synchronicity in terms of information pricing. It not only enriches the related literature on industrial policies and information markets, but also indicates that the market reacts rationally to the pricing of macro information such as industrial policies, which will give investors a better understanding of China's securities market.
Keywords： Government Behavior; Industrial Policy; Stock Price Synchronicity; Firm-level Information
JEL Classification： G12, G14, 1G18

Summary： In this paper, we are interested in examining whether environmental trading schemes (ETS) can induce green innovation among firms, using China regional SO2 emissions trading pilots as a quasi-natural experiment in environmental policy. The data pertain to the green patent data of listed companies in Shanghai and Shenzhen stock exchanges during the period 1990 to 2010. The firm-level dependent variable is measured by the proportion of green patent applications relative to all patent applications.
In July 2002, China's Ministry of Environmental Protection implemented a pilot policy for SO2 emissions trading. SO2 emissions trading was allowed among Shandong, Shanxi, Jiangsu, and Henan provinces; Shanghai, Tianjin, and Liuzhou; and China Huaneng Group Corporation (hence the policy's name, “4+3+1”). In 2007, the pilot was expanded to 11 more pilot provinces and cities: Jiangsu, Tianjin, Zhejiang, Hubei, Chongqing, Hunan, Inner Mongolia, Hebei, Shaanxi, Henan, and Shanxi. By 2010, total SO2 emissions in China had decreased by 14.29% relative to 2005. The green development of enterprises is closely linked with the market-oriented policy of environmental rights trading. Therefore, it is necessary to verify whether environmental rights trading can induce green innovation among enterprises in China.
Using a difference-in-difference-in-differences (DDD) method, we take advantage of variations across regions (i.e., ETS versus non-ETS regions), across industries (i.e., SO2-pollution-intensive sectors vs. non-SO2-pollution-intensive sectors), and across years (i.e., before and after the ETS policy), and obtain several novel findings. First of all, regional ETS policy induces increased green innovation among companies in ETS regions and in SO2-pollution-intensive industries, compared to companies in non-ETS areas and non-SO2-pollution-intensive sectors. Second, the innovation-induced impact is more pronounced in invention patents than utility patents, indicating the effectiveness of the ETS policy in inducing relatively radical innovation. Third, in response to the ETS policy, non-state-owned enterprises appear to engage in more innovation in environmental technologies than state-owned enterprises. Last but not least, we conduct a series of robustness checks regarding the stability of our main conclusions.
This paper makes substantial contributions to the literature on green innovation. First, prior research on green innovation activities in China still uses regional or industrial measures. In contrast, we use a unique firm-level patent dataset, which can identify environmentally friendly innovation activities. Second, another important departure from the literature lies in the causal inference that this paper makes. Using the DDD method, we tease out the causal impact of the ETS policy on firms' innovation in environmentally friendly technologies. Third, we probe the heterogeneous effects of environmental policy, seeking to understand the heterogeneous responses of firms' green innovation by patent type, by firm ownership, and by industry pollution intensity.
The findings presented in this paper have profound policy implications. First, as a market-based environmental rights trading policy, the pilot emission trading scheme promotes enterprises' green innovation activities, which provides theoretical and empirical support for the effect of market-based environmental regulation policies in inducing enterprises' green innovation activities. It is thus likely that China's national carbon market, launched in 2017 as a kind of trading market for environmental rights, will trigger a new round of low-carbon technological innovation among enterprises. Second, environmental rights trading policy not only induces green innovation, but also promotes more radical green innovation, providing a policy environment that enhances the domestic and foreign green competitiveness of Chinese enterprises. The China national carbon market launched in 2017 will thus have a strong policy impact on future patents for low-carbon inventions.
Keywords： Environmental Rights Trading Scheme; Green Patent; DDD
JEL Classification： Q50, O30

Summary： In Neoclassical economics, economies of scale are generally regarded as the main contributor to economic growth. By contrast and under the lens of the revival of classical economics by Young et al., the division of labor is considered the driving force for increasing returns to scale and economic growth. In China, the discussion concerning agricultural household operations has centered on land circulation and its scale operations, while the issue of division of labor in agriculture has not received sufficient attention. Existing economic theories fail to fully explain China's problems.
In 1776, Adam Smith proposed that “the division of labor is limited by the extent of the market”, which is now known as Smith's Theorem. The theorem primarily concerns the division of labor within a firm, but fails to address the industrial division of labor and the relationship between these two elements. The contribution of Allyn Young lies in explaining the division of labor not only within a firm, but also at the industry level, and proposing the reciprocity of division of labor and market capacity, which is known as Young's Theorem. Although Young further elaborated on the relationship between division of labor and market capacity on the basis of Smith, the homogenization of the market was based on neoclassical economics.
Because it is inherently subject to biological rhythms and geographical decentralization, the division of labor and transaction in agriculture are far more complex. Applying theories of the division of labor to agriculture may reveal serious shortcomings. First, the issue of transaction costs in the division of labor has not been fully explored. The scale economy of a firm is determined by its external (market) transaction costs and internal management costs. However, when it comes to the agricultural sector, how the transaction costs in the division of labor are generated and expressed has not yet been explained. Second, industrial organization and firm theories mainly focus on the vertical division of labor, while regional economics and international trade focus on the horizontal division of labor. These two types of division of labor are still separated. In the context of agriculture, the relationship between the horizontal and vertical division of labor requires further examination.
Horizontal specialization induced by contiguous planting of crops, and market capacity buildup induced by demand for service outsourcing, mainly determine the development of vertical specialization in agriculture. Vertical agricultural specialization, in return, contributes to the emergence of trans-regionally mechanical service operation, which reduces transaction costs, increases market capacity, and deepens the division of labor, resulting in a spatial spillover effect on agricultural distribution. With a panel dataset of cities in China's major wheat production areas from 2005 to 2015, we analyze the interaction effect and spatial spillover effect between agricultural machinery and wheat planting. The results first show that division of labor and market capacity are related. Second, deepening the division of labor and transregional service further increases the spatial spillover effect on market capacity. Third, the effect of market capacity on division of labor is mediated by the growth of the regional service market, while the effect of division of labor on market capacity buildup is mediated by transregional service outsourcing along the latitudes.
Combining theoretical frameworks such Smith's Theorem, Young's Theorem, and transaction cost theory and integrating the vertical and horizontal division of labor can result in a deeper understanding of market capacity, division of labor, transaction costs, and their interactions. The policy implications are that market capacity, expressed by both the horizontal division of labor and regional specialization, depends on the behavioral responses of small farmers to the availability of outsourcing services. It can thus be expanded both spatially (by developing contiguous planting) and temporally (by providing transregional service along latitudes). Improving crop distribution by increasing the sown area of wheat along the latitudes will then be helpful in improving the economies of the division of labor. Prioritizing investment in agricultural machinery and cultivating the market for service outsourcing can be effective in engaging farmers in the division of labor, and so should be a part of the modern agricultural system.
Keywords： Division of Labor in Agriculture; Productive Service; Contiguous Planting of Crops; Spatial Spillover Effect
JEL Classification： D23, Q16, R12

Summary： At present, China is actively transforming the mechanism driving its growth from factor investment to innovation, by promoting industrial transformation and upgrading and promoting high-quality economic development. Industrial transformation and upgrading is not only accompanied by upgrading product structure, factor structure, and demand structure, but also by a coordinated upgrading of technological and institutional structure that involves complex interaction and learning among multiple levels and agents. Analyzing the co-evolution of industrial technologies and institutions will not only reveal the internal dynamic of industrial evolution, but also has theoretical and practical significance for accelerating China's industrial transformation and upgrading.
This paper explores the co-evolution of technologies and institutions from the perspective of multi-agent learning. Technological evolution includes not only the expansion of technological boundaries, but also changes in the shares of different technologies in a given area. The former is innovation-driven and the latter is driven by structural change. Compared with the emphasis of new institutional economics on reducing transaction costs, evolutionary economics emphasizes cognitions of institutions. Institutions not only influence interaction among participants by influencing transaction costs, but also influence their learning behavior by shaping the rules of learning. Institutional evolution includes not only the emergence of new institutions that change the original institutional space, but also changes in the proportions of different types in a given institutional space. As technology and institutions jointly determine the fitness or economic performance of participants, the evolution of the two will lead to co-evolution.
In the proposed theoretical model, technology and institutions as a common learning rule establish a co-evolution relationship by influencing an enterprise's fitness. The evolution of the technology share affects the learning rule share by affecting the enterprise's fitness, and the evolution of the learning rule share affects the technology share by the same route. Conservative enterprises that develop at a constant capital growth rate without learning and innovative enterprises that apply trial-and-error methods lag behind conservative enterprises in the early stage of development and surpass them in later stages. The greater the R&D investment, the higher the capital growth rate in later stages. Enterprises that imitate the most innovative enterprises develop fastest among the three types of enterprises. The broader the scope of imitation, the higher the capital growth rate. The industrial technology share is ultimately determined by the technology share of innovative and imitative enterprises, and imitative enterprises play a major rule. The greater the technology restructuring rate, the higher the new technology share. The institutional share of conservative enterprises increases first and then decreases; the institutional share of innovative enterprises decreases first and then increases; and the institutional share of imitative enterprises increases all the time. The R&D effects and imitation effects promote the growth rate of the industry. When the number of enterprises is small, scale effects promote industrial growth, but when the number of enterprises is large, the industry growth rate fluctuates as the number of enterprises increases. Simulation results verify the theoretical analysis.
Co-evolution is the process of diversity generation and reduction. Under the influence of the selection mechanism, highly adaptive technologies and institutions stand out, poorly adaptive technologies and institutions are weeded out, and thus diversity is gradually reduced. In the early stage of industrial development, the government must give appropriate subsidies to innovative enterprises or increase the imitation cost of imitative enterprises. Once the enterprises and industry have escaped the new technology trap, industrial policy should switch from incentives for innovative enterprises to incentives for imitative enterprises. Industrial development policies must trade off current efficiency and future efficiency to improve dynamic adaptive efficiency.
Keywords： Co-evolution; Multi-agent; Learning Process
JEL Classification： B25, C70

Summary： The formation of youth human capital is a major driving force in the development of society. As an important component of human capital, non-cognitive skills have attracted global attention. This study of the factors affecting non-cognitive skills provides theoretical and empirical evidence that will help educators improve classroom management and educational outputs and promote children' capital accumulation. Making use of a randomized field experiment, this paper explores the impact of peers on children' non-cognitive skills, and focuses on the mechanism involved.
Unlike most Western classrooms, traditional Chinese primary and secondary school classrooms feature basically fixed seating arrangements; thus, the classmates seated near to a given student are also fixed. This circumstance provides a way to explore the effect of peers on non-cognitive skills: based on the small group in proximity to a particular seat in the classroom, we can explore the impact of leadership spatial positions on the non-cognitive skills of the surrounding students.
We performed random seat assignment in three primary schools, divided the students into different groups according to their low-to-high order, carried out a completely random seat arrangement in each group, then defined two peer groups: peer2 (the student and his desk mate) and peer5 (the student, the two students sitting at the desk directly in front of him, and the two students sitting at the desk directly behind). Sample data were collected using two waves of questionnaires. The OLS regression results show that each additional student cadre in peer5 has a significant positive impact on students' openness to experience and neuroticism. There are also significant differences in peer effects for students of different genders, and girls benefit more from surrounding leadership positions.
Three kinds of robustness checks were carried out on the empirical results: (1) To avoid omitted variable bias, a sensitivity check of the R_max bound is carried out; (2) We remove the samples without a desk mate or where the desks in front or behind had fewer than two students. (3) The variable of interest is changed from the number of leadership positions to the proportion of leadership positions in the group. These robustness checks show that our empirical results are stable.
In terms of theoretical models, because the selection of leadership positions is endogenous, we use the CEM matching method to balance samples. The matched empirical results of the peer effect are consistent with the boutique model: an individual benefits from a surrounding environment that is similar to his or her own characteristics. In terms of impact mechanisms, we use the amount of communication in the classroom as a delegate variable for social interaction. The results of a one-way analysis of variance show that interaction between students within the group explains the differences in peer effects among different groups. Finally, we discuss the relationship between cognitive skills and non-cognitive skills. However, due to the limitations of the sample data, we cannot conduct further analysis; further research is necessary.
Based on the results, we suggest that school administrators fully consider the individual characteristics of students and the distance between student leaders and others when assigning seats, so as to strengthen communication and cooperation.
The main contributions of this paper are as follows. First, we provide a new perspective on the formation mechanism of children' non-cognitive skills, through analyzing the impact of leadership positions on the non-cognitive skills of surrounding students in the small group of neighbors in the classroom. Second, we discuss the mechanism of peers' effect on children' acquisition of non-cognitive skills, and provide guidance for improving class seat management and promoting human capital accumulation.
Keywords： Peer Effects; Non-cognitive Skills; Social Interaction; Random Assignment; Human Capital
JEL Classification： I0, I2