¡¡¡¡¡¡¡¡¡¡¡¡Economic Research Journal (Monthly)Vol.42No.10 October, 2007

¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡
¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡ CONTENTS

The Effects of Labor Supply and Economic Growth Path Transition

¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªResearch Groupª« (ª©4ªª)

The Features of China's Sustained High Growth and the Decline of Regional Economic Disparity

¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªLiu Shucheng and Zhang Xiaojingª« (ª©17ªª)

Labor Adjustment Cost, Liquidity Constraints and China's Economic Fluctuations

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªHu Yonggang and Liu Fangª« (ª©32ªª)

The Ruralª²urban Income Disparity and Its Effects to Economic Growth in the Case of China

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªWang Shaoping and  Ouyang Zhigangª« (ª©44ªª)

Study on the Correlation between RMB Nominal Exchange Rate and Nominal Interest Rateª«

¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªWang Aijian and Lin Nanª« (ª©56ªª)

On Monetary Policy Game and Exchange Rate Stability under Asymmetric IS Shocks

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªRan Shengxin and Wang Pinlingª« (ª©68ªª)

Business Cycle Synchronization and Regional Financial Cooperation in East Asia

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªYu Xulanª« (ª©82ªª)

Financial Development and Economic Growth with Financial Controlling Policies

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªWang Jinbin ª« (ª©95ªª)

A Contribution to the Empirics of the Effectiveness of Foreign Aid

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªYang Dongshengª« (ª©105ªª)

On the Mechanism of Auctioning the SOE in China with the Constraint of

Accommodating Employees

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªWang Hai and Zhang Weidongª« (ª©115ªª)

Ownership Structure and Corporate Performance: Measures and Endogenity

¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªª« Cao Tingqiu, Yang Xiuli and Sun Yuguangª« (ª©126ªª)

The Share Law of ¡°Comparative Benefit¡±£ºStudy on the Determination Mechanism of Economic Competitiveness

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªHou Jingchuan, Qian Wenrong and Huang Zuhui ª« (ª©138ªª)

Validity of the Comparative Advantage Theory: An Empirical Test from Chinese Historical Data

ª«¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ª¡ªGuan Hanhuiª« (ª©151ªª)

The Effects of Labor Supply and Economic Growth Path Transition

Research Group

(Institute of Economics, CASS)

Abstract: The transition process of labor supply effect is described in a dual economy model subject to population increasing and human capital investment conditions.

Based on some empirical evidence from the labor market in China we find the ¡°vertical effect" emerges while the ¡°horizontal effect" is decreasing. The development of China could not depend on ¡°demographic dividends" in the long run due to the decreasing horizontal effect. It's indispensable to enhance human capital by knowledge and skill accumulation to sustain endogenous economic growth.

Key Words: Effects of Labor Supply; Economic Growth; Human Capital; Transition of Dual Economy

JEL Classification:E240£¬J630£¬O530

The Features of China's Sustained High Growth and the Decline of Regional Economic Disparity

Liu Shucheng and Zhang Xiaojing

(Institute of economics, Chinese Academy of Social Sciences)

Abstract: This paper examines 11 developing economies after WWII and presents two prominent features of China's growth: one is the high growth rate with low fluctuations, manifesting the ¡®high but stable¡¯ growth pattern; the other is that China as a developing country with largest population and vast territory, is just experiencing the narrowing gap of regional growth rate during the sustained high growth period. This paper addresses the two features and extends the second one to the analysis on the decline of regional (provincial) disparity of GDP per capita. We use the Variation Coefficient, Gini Coefficient and ª«¦Òª« Coefficient to measure the overall disparity of GDP per capita from 1952¡ª2006, and find that they all show the inverted U curve with initial widening and the subsequent narrowing trend. The third inverted U curve in particular, according to the Variation Coefficient and Gini Coefficient, reveals that the regional disparity of GDP per capita presents some increase in 1990s and the new trend of decline from 2000. While according to ª«¦Òª« Coefficient, the decline trend will occur from 2005. We also conduct the econometric analysis on the above three inverted U curves and then conclude that the decline of overall regional disparity of GDP per capita has just started and how to consolidate and develop such trend has a long way to go.

Key Words: Economic Growth£»Economic Fluctuations£»Regional Development Strategy£»Regional Economic Disparity

JEL Classification: O530, R110

Labor Adjustment Cost, Liquidity Constraints and China's Economic Fluctuations

Hu Yonggang and Liu Fang

(Shanghai University of Finance and Economics; Henan College of Finance and Economics)

Abstract: Stylized facts in China's aggregate fluctuations show two characteristic departures from those observed in developed countries: (1) Changes in the number of China's work force appears uncorrelated with its output; (2) China's aggregate consumption fluctuates more than its output. Strongly procyclical labor input and smooth consumption over an agent's lifetime resulted from standard RBC models are a mismatch of those stylized facts. However when we introduce labor adjustment cost (model 1) and liquidity constraints into a standard RBC model (model 2) with indivisible labor, second moments from our calibrated models fit the data quite satisfactorily. The relative standard deviations of capital, investment and employment with respect to output resulted from model 1 are 0ª±35, 3ª±2 and 0ª±19 respectively, very close to 0ª±37, 3 and 0ª±19 as observed in practice. When liquidity constraint is introduced into the model, relative standard deviation of consumption with respect to output is also greatly improved from 0ª±33 of model 1 to 1ª±13 of model 2 compared with 1ª±18 in practice.

Key Words: China's Economic Fluctuation; RBC; Labor Adjustment Cost; Liquidity Constraint

JEL Classification: E320, E370, E100

The Ruralª²urban Income Disparity and Its Effects to Economic Growth in the Case of China

Wang Shaoping and Ouyang Zhigang

(1st, 2nd: Economic School, Huazhong University of Science and Technology;2nd: Economic and Management School, East China Jiaotong University)

Abstract: The purpose of this paper is to study the stage effects of regional ruralª²urban income disparity to economic growth in the case of China. To do that, we measure the Tale index and specify a panel co integration model with respect to the Chinese situation of ruralª²urban income disparity and economic growth The estimated results of the panel co integration model indicate that there is the panel counteraction relationship with different structure depending on the level of the ruralª²urban income disparity and the economic stage. Such panel coin tegration implies that the effect of ruralª²urban income disparity to economic growth is positive at the beginning of Chinese reform, however, the effect is negative at present. Estimated PVECM indicates that the long-run effects of the disparity depress the economic growth and stimulate the disparity in short run. Therefore, to implementing the view of scientific development, we should focus on increasing farmer's income so as to reduce ruralª²urban income disparity in short run and promoting investment to farmer's human capital so as to change long-run effects of the disparity to the economic growth.

Key Words: View of Scientific Development; Ruralª²Urban Income Disparity; Economic Growth; Panel  Co integration

JEL Classification: R110, C230

Study on the Correlation between RMB Nominal Exchange Rate and Nominal Interest Rate

Wang Aijian and Lin Nan

(College of Finance, Tianjin University of Finance and Economics)

Abstract: With Chinese financial opening and RMB internationalization carrying on, the study on the correlation between RMB exchange rate and interest rate is more important. This paper gives a framework which shows that (1) managed floating exchange rate regime is good for realizing internal and external equilibrium, (2) capital account liberalization is needed, and that (3) foreign exchange interventions for maintaining exchange rate make economy go wide of equilibrium. With the help of theoretical and empirical methodology analysis, the paper finds that there is some alternate recurrent linkage between RMB nominal exchange rate and interest rate. Both of them have ¡°adjustmentª²increaseª²adjustmentª²decreaseª²adjustment¡± responses and when one is increase or decrease, the other is in adjustment. The paper points out that we should respect the spontaneous action of market forces when the macroª²economy does some adjustments to come to its internal and external equilibrium. And we should harmonize the RMB exchange rate policy and interest rate policy.

Key Words: Nominal Exchange Rate; Nominal Interest Rate; Capital Mobility; Disequilibrium of Foreign Exchange Reserve

JEL Classification: F310, F320

On Monetary Policy Game and Exchange Rate Stability Under Asymmetric IS Shocks

Ran Shengxin

£¨Finance and Statistics School£¬East China Normal University£©

Wang Pinling

£¨Department of Mathematics and Statistics, Shanghai Lixin University of Commerc

e£©

Abstract: This paper divides the countries in the current international monetary system (CIMS) into three blocs, that is, the core, the floating periphery and the pegged periphery, and constructs a soª²called ª«Triª²Country Coreª²Periphery Game Model.ª« In virtue of this framework, this paper studies the equilibrium of the  monetary policy game among the three blocs under the asymmetric shocks of total demand, and the conditions and timings a country gives up the fixed exchange rate regime. The main conclusion shows that: whether exchange rate or exchange rate regime is stable or not rests less with the degree of exogenous shocks, and more with the asymmetry of the impact. When the core takes a cooperative attitude with the floating periphery, the Nash equilibrium and the stability of the CIMS are more likely to be realized. The key to implement the peg system lies on the government's capacity and confidence. These conclusions are beneficial for China to grasp the correct monetary and exchange rate policy orientation in weakening the asymmetric IS shocks and promoting the exchange rate coordination in East Asia.

Key Words: Asymmetric IS Shocks; Monetary Policy Game; Exchange Rate Stability; Current International Monetary System

JEL Classification:C710, C720, E600£¬F300, F420

Business Cycle Synchronization and Regional Financial Cooperation in East Asia

Yu Xulan

(School of Finance, Hu'nan University)

Abstract: The aim of this paper is to investigate business cycle synchronization among East Asia countries (regions). It has an important implication in terms of evaluating the costs and benefits of macroeconomic coordination. Indeed, using both a co integration and a common cycles theory in a VAR (p) framework, a set of countries (regions) is said to have common and synchronous business cycle if the shortª²run and longª²run dynamics is perfectly correlated. Using seasonally adjusted real GDP per capita for period 1994Q1 to 2005Q3, we show that East Asia countries (regions) have common and synchronous business cycles and qualify well as a candidate to establish financial cooperation in the future.

Key Words: Business Cycle Synchronization; Financial Cooperation; Common Trend; Common Cycles

JEL Classification: C320, E320, F420

Financial Development and Economic Growth with Financial Controlling Policies

Wang Jinbin

(School of Economics, Renmin University of China)

Abstract£ºUsing panel data from 1978¡ª2002 and applying recent GMM techniques developed for dynamic panels, this paper investigates the relationship between the financial intermediation development and economic growth based on samples of different financial controlled areas and different periods. Our econometric results show that financial intermediation development negatively influences economic growth in strong financial controlled area. While in weak financial controlled area, there is no any significant role of financial intermediation development on economic growth. These results mean that loosing financial controlling policies can improve resource allocation efficacy of financial intermediation.

Key Words£º Financial Control£»Economic Growth£»GMM

JEL Classification£ºG180£¬ O110

A Contribution to the Empirics of the Effectiveness of Foreign Aid

Yang Dongsheng

(Rural Development Institute, Chinese Academy of Social Sciences)

Abstract£ºBequest motive has direct effects on representative consumer¬ðs consumption and saving decisions. In this paper, the author uses an overlappingª²generations model with bequests to investigate the effectiveness of foreign aid. I find that, under certain circumstances, the impact of foreign aid on recipient country¬ðs capital accumulation is nonª²linear, exhibiting the typical kind of threshold effects. This theoretical finding is consistent with viewpoints such as ¡°convergence clubs¡± and ¡°threshold externalities¡± in recent crossª²country growth literature, and is helpful to explain the severe controversies in the empirical literature about the effectiveness of foreign aid. The results of threshold regression analyses using crossª²country longitudinal data are consistent with the main conclusions of the theoretical model.

Key Words£º Foreign Aid; Bequest Motive; Capital Accumulation; Threshold Regression

JEL Classification£ºF350, O160

On the Mechanism of Auctioning the SOE in China with the Constraint of Accommodating Employees

Wang Hai and Zhang Weidong

(Huazhong University of Science and Technology)

Abstract£ºThe transfer of SOE¬ðs property right involves benefits readjustment of its stakeholders; therefore the design of the trading mechanism is not only to sell the SOE with a high price but also to realize other nonª²price objectives such as rearrangement of original employees, further development of the enterprise etc. This paper constructs a bidding mechanism with the constraint of accommodating employees to analyze the tradeoff between maximizing SOE auction revenue and minimizing induced unemployment. By adding that the winner is required to settle down a certain quantity of former SOE employees in the new enterprise, this mechanism brings on the competition among prospective investors in both the price and the quantity of employment, which can help the government to balance the different objectives more efficiently. However, the constraint will only work under the condition that the government has stressed sufficiently on the employees¬ðrearrangement and set the best constraint threshold. Moreover, the government should set an explicit compensation standard for the induced layª²offs to eliminate the investors¬ð accommodating cost dispersion and introduce more strategic investors with considerable heterogeneity to participate in the bidding.

Key Words£º Auction; SOE; Employee Accommodation; Government Behavior

JEL Classification£ºD440, L320, E240

Ownership Structure and Corporate Performance: Measures and Endogenity

Cao Tingqiu, Yang Xiuli and Sun Yuguang

(School of Economics, Shandong University)

Abstract: In this paper, we analyzed the differences between two methods of ownership structure¡ª¡ªdirect ownership structure and ultimate ownership structure, compared the different characteristics of the ownership structure and the different types and levels of ultimate owners, and tested the endogenous of ownership structure by using the data of 3217 listed companies in 2004 to 2006.The studies have suggested that, no matter adopting the direct ownership or the ultimate ownership, the relationship between ownership concentration and corporate performance is reflected as a leftª²lowª²andª²rightª²high U curve; province and local government ownership has obvious negative effects on corporate performance; the conclusions of our analysis have confirmed the indignity hypothesis of the ownership structure.

Key Words: Direct Ownership; Ultimate Ownership; Indignity Hypothesis; Corporate Governance

JEL Classification:G320£¬G380

The Share Law of ¡°Comparative Benefit¡±£ºStudy on the Determination Mechanism of Economic Competitiveness

Hou Jingchuan£¬  Qian Wenrong and  Huang Zuhui

(Management School of Zhejiang University)

Abstract: The essence of economic competitiveness of an agent is how much it can share from the ¡°Comparative Benefit¡±, which represents the net added gain resulted from the division and trade between it and its partners according to their comparative advantage, in economic activities. So, competitiveness includes two kinds of capacities: one is the cooperative competitiveness between the agent and its partners (namely, ª«economic competitivenessª«), the other is the nonª²cooperative competitiveness between the player and its craftsmen (namely, ª«economic disputativeness).ª« With no consideration of the existence of craft competitors, the comp

etitiveness of the agent related to its partner (i.e. competitivenessª« here) is constantly 1:1 according to their gross level, and just determined by the productivities of itself and its partner in terms of their average level shared by per unit of factor inputs. If the player and its partner all have craft competitors, the competitiveness of any of them is mainly related to the cooperation degree of all the craft competitors in the industry, and, certainly, the productivities of all players. But, as for the disputativenessª« of it with its craft brothers, the productivities of them are still the most important determinants.

Key Words: Comparative Benefit; Share Law; Economic Competitiveness; Determination Mechanism

JEL Classification: D240£¬D300£¬F100

Validity of the Comparative Advantage Theory: An Empirical Test from Chinese Historical Data

Guan Hanhui

(School of Economics and Management, Tsinghua University£»Center for China in the World Economy, Tsinghua University)

Abstract£ºTo test the validity of neoclassical trade theory is always an important research field in international economics, but since researchers have trouble in getting data about autarky prices, direct test of the theory of comparative advantage is very difficult. The experience of Chinese economy separating from outside world before Opium war and trading freely with western countries after Opium war should be looked as a natural experiment. This article uses the data about prices and trade volumes in this period to test the theory of comparative advantage, the results verify the theory sufficiently.

Key Words£º Comparative Advantage; Autarky Economy; Free Trade

JEL Classification£ºF10£¬ F40