CONTENTS

On China's Development Model: Costs and Benefits of China's Decentralization Approach to Transition

---------------------------------------------------Wang Yongqin, Zhang Yan, Zhang Yuan, Chen Zhao and Lu Ming( 4 )

Regional Decentralization and Economic Efficiency: Evidence from Separateª²Planning Cities in China

--------------------------------------------------------------------------------------------------Shi Yupeng and Zhou Li'an(17)

Shortª²term Determination of Government Supply Preference: Political Equilibrium and Economic Efficiency

--------------------------------------------------------------------------------------------Tang Yugang and Zhao Daping (29)

Are Currency Appreciations Contractionary in China£¿

------------------------------------------------------------------------------------------------------------------Shi Jianhuai(41)

Welfare Analysis of Government Debt

---------------------------------------------------------------------------------------------Lin Xixi and Gong Liutang £¨56£©

Estimating Bilateral Exposures in the China Interbank Market: Is There a Systemic Contagion?

----------------------------------------------------------------------------Ma Junlu, Fan Xiaoyun and Cao Yuantao£¨68£©

Income Inequality and Health in Rural China

----------------------------------------------------------------------------------------------Feng Jin and Yu Yangyang£¨79£©

Performance of China's Service and Manufacturing Industry Enterprises: An Empirical Analysis

Based on China's First Economic Census

-------------------------------------------------Liu Peilin and Song Zhan£¨89£©

Ownership, Agency Cost and Agency Efficiency

-------------------------------------------------------------------------------------------------------------------Li Shouxi£¨102£©

A Study on Anchoring Effect for Nonª²tradable Share Reform of Listed Companies

 in China

-----------------------------------------------------------------------------------------Xu Nianhang and Wu Shinong £¨114£©

Wave Phenomenon and the Reconstruction of Macroeconomic Theories for Developing

Countries

------------------------------------------------------------------------------------------------------------Justin Yifu Lin£¨126£©

Science and Positivism: A Review on Neuroeconomics

--------------------------------------------------------------------------Ye Hang, Wang Dingding and Jia Yongmin£¨132£©

How to Formulate A Research Report Based on Field Work ------------------------------------------Zhu Ling£¨143£©

A Book Review on Labor Migration in Transition China--------------------------------------------------Li  Shi£¨154£©


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E-mail:erj@cass.org.cn

 On China's Development Model:
The Costs and Benefits of China's Decentralization Approach to Transition

 Wang Yongqin  Zhang Yan  Zhang Yuan  Chen Zhao  Lu Ming
£¨China Center for Economic Studies and Economics Department, Fudan University£©

Abstract:

This paper provides a coherent framework to fully account for China's development model, both the successes and the failures of the China's decentralization approach to reform. The combination of political centralization and economic decentralization provides local governments with enough incentives to develop local economies, in particular the incentives to promote markets and privatization locally. In the meantime, the relative evaluation-based incentive schemes lead to interregional market segmentation, increasing interregional development gaps and unequal provision of certain public goods. The success of early-stage reform can be attributed to the benefits of the decentralization approach. The next stage reform should minimize the costs associated with the approach. China's gradualist reform can be taken as a problem of mechanism design by the central government. So, after identifying the costs and benefits of the decentralizat

ion approach, it is essential to have a reasonable design of the next-stage reform package.

Key Words: Decentralization; Benefits; Costs; Mechanism Design

JEL Classification: P200£¬D720£¬H700

Regional Decentralization and Economic Efficiency:
Evidence from Separate-Planning Cities in China

 Shi Yupeng and Zhou Li'an
(Guanghua School of Management, Peking University)

Abstract: China started its reforms with the devolution of central power, especially regional decentralization. Based on the experiences of 14separateplanning cities, this paper tries to examine the effect of regional decentralization on economic efficiency. We estimate the causal effect of separate-planning by constructing two types of control groups, one from intra-province and the other from inter-provinces. There is strong evidence supporting the view that decentralization improves economic efficiency. The basic result is robust to a number of specification tests.

Key Words: Regional Decentralization; Separate-planning Cities; Economic Efficiency

JEL Classification:C230£¬H730£¬O180£¬P250

 Shortterm Determination of Government Supply Preference:
Political Equilibrium and Economic Efficiency

 Tang Yugang and Zhao Daping
(China Center for Economic Studies, Fudan University£»
Department of Trade & Economics, Shanghai LiXin University of Commerce)

Abstract:

This paper discusses the short-term determining mechanism of China's government supply Preference . Political but not economic market equilibrium is the key to understand it. Under the assumption of managed competitive political market and political support maximizing government, the political determination process, its efficiency character, and the political price formation mechanism are investigated respectively. The low efficiency nature of political allocation is aggravated for offside and absence of government activities. Current reforms should focus on promotion of market-oriented economic transition and public finance transformation, but not overall democratization . Management of political prices by authority will play a constructive role in the transition period. While gradual democratization and the building of competitive political market based on equal political rights are farsighted choices.  

Key Words: Managed Competitive Political Market; Political Equilibrium; Economic Efficiency; Authority

JEL Classification:H110£¬H490£¬P350

 
Are Currency Appreciations Contractionary in China£¿
Shi Jianhuai
£¨China Center for Economic Research, Peking University£©

Abstract: Chinese economy has been in a state of external and internal imbalances for some years, which has something to do with the undervaluation of renminbi (RMB). But Chinese Government hesitates to allow RMB to appreciate because of the worry that RMB appreciations are contractionary thus have negative impact on China's economic growth and employment. The purpose of this paper is to empirically assess the effects of RMB real exchange rate on China's output. The econometric results of the paper show that (1) even after source of spurious correlation is controlled for, RMB appreciation has led to a decline in China's output, suggesting that RMB appreciations do be contractionary, and that (2) once the international finance linkage of Chinese economy is accounted for, the effect of RMB real exchange rate shocks on China's output and the power of the shocks in explaining the change of China's output are diminished. The paper gives some possible explanations to those findings, and points out that the findings do not necessarily imply that China should continue maintaining the undervaluation of RMB.

Key Words:Renminbi£» Exchange Rate Misalignment£» ContractionaryDevaluation£» VAR model

JEL Classification:F310; F410; O530

Welfare Analysis of Government Debt
Lin Xixi and Gong Liutang
(Guanghua School of Management, Peking University)

Abstract£ºGovernment debt is an important topic for economic research and it has also been greatly concerned by governments. Economists have done a lot of research on the optimal quantity of debt based on discussing the applicability of Barro-Ricardian equivalent theory. However, seldom research focuses on the welfare cost of government debt for China economy even if many researches study the effect of government debt on economy. In an incomplete market with idiosyncratic labor shocks and borrowing constraints, this paper discusses welfare cost of government debt in China economy and compares these results with those in US economy.

Key Words£º Barro-Ricardian Equivalence£»Borrowing Constraints; Welfare Analysis

JEL Classification£ºO530, H630, E620

 
Estimating Bilateral Exposures in the China
Interbank Market£ºIs There a Systemic Contagion?
Ma Junlu, Fan Xiaoyun and Cao Yuantao
(Department of Finance, Nankai University)

Abstract£ºA frontier study, which has highly attracted the attention of financial researchers (as well as regulators and policymakers), is how to estimate, predict and regulate systemic risks of banking system. This paper uses balance sheet information to estimate the matrix of bilateral credit relationships for the China banking system and test whether the breakdown of a single bank or banking group can lead to contagion at different loss ratios. Our findings have important implications for banking regulation.

Key Words£º Systemic Risk; Contagion; Interbank Market

JEL Classification£ºG210, P340, G330

 
Income Inequality and Health in Rural China
Feng Jin and Yu Yangyang
(Department of Economics, Fudan University)

Abstract£ºWith the rising income inequality, the effect of income distribution on health and health inequality has aroused everincreasing concerns. Using CHNS1997 and 2000 survey data, we attempt to address the following two issues: how could income inequality influence health; does the rising income inequality result in health inequality. We find that the effect of income distribution on healthis lagged. There is an ¡°invertedª²U¡± association between income inequality and health in rural China and the detrimental effect occurs in higher inequality areas. A possible reason is that the income inequality has an effect on public health care provision. We also find that the rising income inequality strengthens theincome effect, which means the health of lowerª²income group is worsening since they are more easily exposed to adverse income shocks.

Key Words£º Income Inequality Hypothesis; Health; Public Health Care ProvisionJEL Classification£ºI120£¬R200£¬D210


Performance of China's Service and Manufacturing Industry  Enterprises:
An Empirical Analysis Based on China's First Economic Census

 Liu Peilin and Song Zhan

Abstract: The empirical analysis based on China's economic census data shows that: (i) the asset per worker in service industry enterprises is more than that of manufacturing industry enterprises; (ii) the financial and economic performance of service industry enterprises is worse than manufacturing industry enterprise;(iii) the entrance threshold of investment of service industry enterprise is not lower than that of manufacturing industry enterprises. Consequently, we argued that China should be more careful in prompting the development of service industry

enterprises.

Key Words: Service Industry£» Economic Growth Style£» China's Economy

JEL Classification:L800, O400, N150

 
Ownership, Agency Cost and Agency Efficiency
Li Shouxi

(School of International Auditing, Nanjing University of Audit; Institute of Economics, CASS)

Abstract: This paper examines the relationships between ownership, agency cost and efficiency in Chinese transition economy. The main findings are as follows:  (1) Agency cost of state-owned property rights is higher than that of diversified ownership, meanwhile the latter is higher than that of private property rights, and the agency cost differences between diversified ownership and private ownership is smaller than the differences between state-owned property rights and diversified ownership. (2)The ratio of long-term investments to assets and the number of employee are significantly positively related to agency cost, and the ratio of long-term investments to assets, financial leverage and the number of employee are significantly negatively relative with agency efficiency. (3) The differences of agency cost between alternative property rights are negatively relative with firms' scales. (4) With the strengthening of competition, the agency costsof various property rights are almost increasingly decreasing, and respectivelythe agency efficiency are gradually increasing. The direct implication of our study is that the objectives of the reform of SOEs should be focused on reducing the agency cost by means of promoting the reform of diversified property rights system, and establishing a efficient overseeing and controlling mechanism, otherwise SOEs will at last be extruded downright from rival market by private firms.

Key Words:SOEs; Private Firms; Agency Cost; Agency Efficiency

JEL Classification:P260£¬P310

 
A Study on Anchoring Effect for Nonª²tradable Share Reform
of Listed Companies in China
Xu  Nianhang and Wu Shinong
(School of Management, Xiamen University)

Abstract: The non-tradable share reform is an issue unique to capital market in China. This paper uses the theory of ¡°anchoring effect¡± in psychology, to investigate two key issues: how to set up compensation ratio and determinants of compensation ratio. The results from a sample of 526 reformed firms show that: (1) compensation ratio is set up irrationally by the reformed firms, there exists significant ¡°anchoring and adjustment¡± biases; (2) when setting up compensation ratio, reformed firms mainly use two anchor, the static anchor-the average compensation ratio of first 3 pilot firms, and the moving anchor-the average ratio of preceding round of reformed firms; (3) as the reform progress, not matter based on the static anchor or the moving anchor, for the second round pilot firms, the compensation ratios are more affected by the ¡°anchor¡±, but less affected by other variables, anchoring effect is strong; but for the fullª²scale reformed firms, the compensation ratios are more affected by other variables, but less affected by the ¡°anchor¡±, anchoring effect is weak; (4) not matter based on the static low/high anchor or the moving low/high anchor, for firms which offer low compensation ratio, the compensation ratios are more affected by the ¡°low anchor¡±, but less affected by other variables, anchoring effect is strong; but for firms which offer high compensation ratio, the compensation ratios are more affected by the ¡°

high anchor¡±, but less affected by other variables, anchoring effect is weak.

Key Words: Anchoring Effect; Non-tradable Share Reform; Compensation Ratio

JEL Classification:C910, G320, G380

 

Wave Phenomenon and the Reconstruction of Macroeconomic Theories
for Developing Countries
Justin Yifu Lin
£¨China Center for Economic Research, Peking University£©

Abstract:

It is an implicit assumption in the existing macroeconomics that there is no consensus among firms about which the next promising industry will be in the process of economic growth. However, because of the advantages of backwardness, firms in a developing country are easy to form a consensus about the next promising industry. The consensus often leads to a wave phenomenon in the firms' investments and results in over capacity in the new industry and a series of related economic problems. It is imperative to relax the above implicit assumption and reconstruct a new macroeconomics to explore the implications of the investments' wave phenomenon on prices, employment, economic growth and business cycles in a developing country so as to provide the government with references for making fiscal, monetary, financial, trade, industrial development and other macroeconomic management policies.

Key Words :Macroeconomics£»Macro Policy£»Investment Behavior

JEL Classification:E000, L160

 

Science and Positivism¡ª¡ªA Review on Neuroeconomics
Ye Hang, Wang Dingding and Jia Yongmin
(Zhejiang University)

Abstract£ºThe Neuroeconomics, which emergened in late 1990¡¯s, is a frontier area and a new branch of economics. It utilizes the mode, the method, and the tools of modern neurology to analyze the economic behavior of human being, and lays out the human brain¡¯s (mainly nerve cell and its neurosurgery and NN) function, role, and mechanism in dealing with individual decisionmaking. It promotes the positive research to a high level which has nerve been reached. After provide a series of significant revision with traditional economics, it then exploits new fields for the development and the deepening of economics.

Key Words£ºExperimental Economics; Behavioral Economics; Evolutionary Psychology ; Neuroscience; Neuroeconomics

JEL Classification£ºA100£¬A120£¬B410

 How to Formulate a Research Report Based on Field Work
Zhu Ling
(Institute of Economics, CASS)

Abstract: The objective of this paper is to discuss approaches which can effectively help to strengthen the writing capacity of graduate students and junior researchers,  from the point of view of  teaching  and research. Firstly, it explores  ¡°doing from learning¡± and ¡°learning from doing¡± as the ways to bridge the capacity gap. Secondly, it illustrates methods to train junior researchers in capacity building programs  during the  implementation of research projects carried out by a team. Finally, citing case studies as examples it highlights a number of principles  for the formulation of a research report based on field work.

Key Words: Economic Research; Capacity Building; Paper Writing

JEL Classification:B400, C100, C800