¡¡¡¡¡¡¡¡¡¡¡¡Economic Research Journal (Monthly)Vol.43 No.1 January, 2008

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

Uneven Growth in China and India¡­¡­¡­¡­¡­¡­Shubham Chaudhuri and Martin Ravallion (4)

From Segmentation to Integration: The Political Economy of Urbanª²Rural Economic Growth and Social Harmony ¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Chen Zhao and Lu Ming (21)

Empirical Analysis of Asymmetric Moneyª²Output Causality in China:Based on the Smooth Transition Vector Errorª²Correction Model¡­¡­¡­¡­¡­¡­Zheng Tingguo and Liu Jinquan (33)

Understanding Equilibrium, Misalignment, Volatility and Adjustmentof RMB Exchange RateJin ¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Xuejun and Wang Yizhong (46)

Parameter Heterogeneity, Economic Convergence and Regional Economic Development in China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Zhou Yean and Zhang Quan (60)

Development Level, Structure, and Impact of Producer Services in China: An International Comparison Based on Input Output Approach¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Cheng Dazhong (76)

A Theoretical and Empirical Study on the Impacts of FDI on Indigenous Innovation in China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..C. Simon Fan, Yifan Hu and Zheng Hongliang (89)

Outsourcing and Productivity: Evidence from China¡­¡­¡­¡­¡­¡­.Xu Yi and Zhang Erzhen (103)

Productivity Performance and Investment Efficiency of China's Private Enterp

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­risesWang Zheng and Shi Jinchuan (114)

Optimal Patent Protection, Directed Technological Change and Wage Inequality

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Pan Shiyuan (127)

What Affects People's Social Trust? Evidence from Guangdong Province¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Li Tao, Huang Chunchun, He Xingqiang and Zhou Kaiguo (137)

Reform and Improvement of the Large Stateª²Owned Group Corporation Governance:

A Summary of the 7th Forum of SOEs ¡­¡­¡­¡­¡­¡­..Shao Xuefeng and Zhang Dongming (153)

Summary of the Conference on Trade Growth, Trade Advantage and Trade Mode Reforms

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Shen Yuliang, Song Shengzhou and Wen Yaoqing (156)

Uneven Growth in China and IndiaShubham Chaudhuri and Martin Ravallion

(World Bank)

Abstract:

The paper reviews evidence on the ways in which recent economic growth has been uneven in China and India and what this has meant for inequality and poverty. Drawing on analyses based on household survey data and aggregate data from official sources, we show that growth has indeed been unevenª²geographically, sect orally and at the householdª²level and that this has meant uneven progress against poverty, less poverty reduction than might have been achieved had growth been more balanced, and an increase in income inequality. The paper then examines why growth was uneven and why this should be of concern. The discussion is structured around the idea that there are both ¡°good" and ¡°bad" inequalitiesª²drivers and dimensions of inequality and uneven growth that are good or bad in terms of what they imply for both equity and longª²term growth and development.  We argue that policies are needed that preserve the good inequalitiescontinued incentives for innovation and investment but reduce the scope for bad ones, notably through investments in human capital and rural infrastructure that help the poor connect to markets.

Key Words:Growth; Development; Uneven; Poverty Reduction

JEL Classification:O150,O180,I300

From Segmentation to Integration:The Political Economy of Urbanª²Rural Economic

Growth and Social Harmony

Chen Zhao and Lu Ming

(China Center for Economic Studies,Employment and Social Securi

ty Research Center, Fudan University)

Abstract:

Although the number of rural to urban migrate workers has kept growing, China's urbanization still lags behind her industrialization. Meanwhile, wage gap between migrant and urban workers has kept enlarging other than narrowing. To understand these puzzles contrary to the traditional theories, we study the endogenous formation of urbanª²rural segmentation policy. We find that change of the urbanª²rural segmentation policy results from urban government's optimal decision based on the welfare of urban residents. The urbanª²biased policies have retarded the real wage growth of migrant workers, decelerated urbanization, and enlarged the wage gap between urban workers and migrant workers. Only if the social conflicts between urban residents and migrants could be lessened, or the policymaking is no longer biased unilaterally for urban residents, the transition from urbanª²rural segmentation to integration could come true. This transition willbe beneficial for both economic growth and urbanª²rural equality and social harmony.

Key Words: Urbanization; Labor Mobility; Urbanª²Rural Inequality; Urbanª²Rural Segmentation

JEL Classification:O11£¬O18£¬R11

Empirical Analysis of Asymmetric Moneyª²Output Causality in China:

Based on the Smooth Transition Vector Errorª²Correction Model

Zheng Tingguo and Liu Jinquan

(Quantitative Research Center of Economics, Jilin University)

Abstract:

The study on the asymmetric moneyª²output causality has been widely taken interest in the microeconomics field recently. This paper uses a smooth transition vector errorª²correction model (STVECM) to study whether there is an asymmetric moneyª²output causality in China over 1989¡ª2007. By including lagged yearly growth rates in output, lagged yearly growth rates in money, and lagged yearly changes in the annual inflation rate as transition variables, linearity test results show the evidence of nonlinearity in the output, moneyand price system. By model estimation, the economy and/or policy stateª²dependence of the China's moneyª²output causality is identified. And the asymmetry is approved by nonlinear Granger causality test. Broadly speaking, the moneyª²outputcausality of China has strong asymmetries which depend on the high and low growth stages of business cycle, the high and low growth stages of money supply, andthe accelerating and decreasing stages of inflation rate.

Key Words:Money; Output; Asymmetric; Smooth Transition Vector Errorª²correction Model

JEL Classification:C32,E32,E52

Understanding Equilibrium, Misalignment, Volatility and

Adjustment of RMB Exchange Rate

Jin Xuejun and Wang Yizhong

(School of Economics, Zhejiang University)

Abstract£º

This paper differentiates the output market equilibrium exchange rate,misalignment and volatility from asset market, and gets shortª²term or longª²term value of RMB equilibrium exchange rate. The findings indicate that the RMB is not seriously overvalued or undervalued, and real exchange rate(RER)is undervalued in the output market, which has an enlarging trend, but overvalued in the asset market. The longª²run volatility in the output market mostly stems from relative supply impact, but mechanism for its adjustment and relative monetary supply impact account for most of the shortª²run variations in the asset market. Policy implication indicates that at least controlled capital account decreases riskpremium, and allows decision maker to adjust shortª²term volatility of the RER,then enlarge the volatility range in order to ease appreciation expectation, which can eliminate shortª²term misalignment in the asset market; Decision makers can only regard longª²run equilibrium exchange rate as target exchange rate of appreciation given the determinant factors of the longª²term volatility, which can realize the equilibrium between internal and external economy by force of supply management policy on condition that demand management policy is invalid.

Key Words£º Equilibrium Exchange Rate; Exchange Rate Misalignment; RER Volatility

JEL Classification£ºC220, F310

Parameter Heterogeneity, Economic Convergence and

Regional Economic Development in China

Zhou Yean and Zhang Quan

(School of Economics, Renmin University of China)

Abstract£º

In this paper, the authors use quantile regression estimator to study China¬ðs urban economic convergence. The existing literature usually adopts conditional mean regression, a method that could hardly model regional heterogeneity as well as different types of convergence. Using crosssectional data on city level, covering the period from 1988 to 2005, we examine the stylized facts of urban economic convergence in China. OLS estimator and quantile regression estimator extended by Koenker and Hallock (2001) are compared. Evidence strongly supports partial parameter heterogeneity, which is at odds with the OLS results. The results from the quantile regression do not confirm the neoclassical prediction ofconditional convergence. We find that convergence is not a common phenomenon across the conditional growth distribution. The regions with growth distribution which in lower quantiles are characterized with conditional convergence, but regions with growth distribution which in higher quantiles are otherwise. These findings are helpful for policy makers to balance China¬ðs regional development.

Key Words£º Economic Growth; Income Convergence; Quantile Regression

JEL Classification£ºC31,O41,R11

Development Level, Structure, and Impact of

Producer Services in China:An International Comparison

Based on Inputª²Output Approach

Cheng Dazhong

(Department of International Economics & Institute for World Economy,

Fudan University)

Abstract£º

This paper employs the inputª²output approach and the Iª²O table dataset, to conduct an empirical study of the growth and structural changes in China¬ðsproducer services as well as the relevant impacts through an international comparison with 13 OECD countries. We find the higher level of physical inputs whereas the lower level of service inputs in Chinese national economy. China¬ðs producer services can not exert a relatively strong pull power on national economy nor react vigorously to the demand from other sectors. The resons for this are the inadequacy of social credit and various distortions. Therefore, breaking market monopoly and putting market mechanism in order, regularizing market and government behaviors will become the priority in policyª²making.

Key Words£º Services; Producer Services; Inputª²Output Analysis

JEL Classification£ºF719

A Theoretical and Empirical Study on the Impacts of

FDI on Indigenous Innovation in China

C. Simon Fanª¬a, Yifan Huª¬b and Zheng Hongliangª¬c

(a: Department of Economics, Lingnan University; b: Research Department, Global

Asset Management, Natixis; c: Institute of Economics, CASS)

Abstract£º

This paper conducts a theoretical and empirical investigation of the effects of FDI on indigenous technological effort. It develops a simple model that demonstrates the complementary effect and substitution effect of FDI on domestic R&D for a developing country. The theoretical analysis yields several hypotheses, which are tested based on a firmª²level survey data in China. Our empiricalstudy explores several empirical methodologies that tackle the potential endogeneity problem, and generates two main findings. First, a firm¬ðs expenditure on research and development (R&D) decreases with the amount of FDI it receives. Second, sectorª²level FDI has a greater positive impact on the R&D effort for the firms with more foreign presence. Combining these two effects together, we find thatthe net effect of FDI on indigenous R&D effort is negative.

Key Words£º Firmª²level FDI; Sectorª²level FDI; Indigenous R&D

JEL Classification£ºF210, F230, O320, O330

Outsourcing and Productivity: Evidence from China

Xu Yi and Zhang Erzhen

(School of Economics, Nanjing University)

Abstract:

we use inputª²output tables to measure outsourcing on industry level and estimate the effects of international outsourcing on productivity, manufacturing employment and output in the China between 1997 and 2002. The results show that outsourcing is positively associated with productivity because of capitalª²saving technical progress, and it has no negative effect on employment because of scale effect counteracting substitute effect. The effect on output can arrive in two points :1)it moves the production frontier to the outer so it is a shifter of production frontier;2)it leads product structure transfer from laborª²insensitive to capitalª²insensitive product so it is a thruster of product structure upgrading.

Key Words:Outsourcing; Productivity; Inputª²output Tables

JEL Classification:F020, F150, F190, D390

Productivity Performance and Investment Efficiency

of China's Private Enterprises

Wang Zheng and  Shi Jinchuan

(School of Economics, CRPE, Zhejiang University)

Abstract:

This paper uses the first national economic census data to systematically investigate the issue of productivity performance of China's private enterprises and their investment efficiency. Evidences indicate that the private enterprises in the material and machinery industries in the eastern area have a leading advantage of both labor and capital productivity over their counterparts in the other areas, much of which, however, is due to the outstanding performance of the large firms. An estimation of the production function leads to a robust estimates of capital elasticity between 02 and 0ª±3 in most sectors. Based on this, we decompose the variances of productivity and find that nearly 90% of the withinª²region and industry productivity variation stems from total factor productivity (TFP), while the contribution from capital per capita accounts for only 13%. Although the primary source of interª²industry productivity variation is still TFP, capital per capita plays an essential role in explaining the differences in productivity across regions. The marginal product of capital is found to be unequal across regions and industries, which implies that there exist some degrees of inefficiency in the allocation of private capital across sectors. Then we infer from an experimental simulation that the potential improvement is more significant if the capital is reallocated across provinces than if across industries, which implies that the interregion barriers are more serious than interª²industry barriers for the mobility of private manufacturing capital.

Key Words:Private Enterprises; Productivity; Investment Efficiency; Census Data

JEL Classification:O140, O330, P230

Optimal Patent Protection, Directed Technological Change

and Wage Inequality

Pan Shiyuan

(School of Economics, Zhejiang University)

Abstract:

In this paper, there are two kinds of patents, one skillª²intensive industrial patent, which is skillcomplementary; another laborª²intensive industrialpatent, which is unskillª²complementary. It is showed that optimal breadth of these two kinds of patents is finite and affected by labor endowment. If the number of unskilled labor is greater than that of skilled labor, then optimal breadthof unskilledª²complementary patent is broader than that of skillª²complementarypatent. In addition, we show that labor endowment will affect direction of technological change via its impact upon optimal patent protection, thus influencing on skill premium.

Key Words:Patent Breadth; Skillª²intensive Industrial Patent; Laborª²intensive Industrial Patent; Direction of Technological Change; Wage Inequality

JEL Classification:O300, O310, O340

What Affects People's Social Trust?

Evidence from Guangdong Province

Li Taoª¬a, Huang Chunchunª¬b, He Xingqiangª¬c  and  Zhou Kaiguoª¬c

(a:School of Finance, RUC; b: School of Economics, RUC; c:

Lingnan College, Sun Yatª²Sen University)

Abstract:

What affects people's social trust? Utilizing a unique urban householdsurvey data in Guangdong Province in 2004, we find personal, community, and social factors all contribute to the social trust. Firstly, people with higher ages, no marriage, other income sources except job, religion beliefs, less job turnovers, more optimism, higher life or job satisfaction, or on an administration position have more social trust. Secondly, people whose daily spoken language is not the dominant one in the city, who got help from neighbors or the community resident committee in case of financial difficulty, or who started to live in the current city before 18, and people with a longer living time in the current city, or the birth place within the sample province have more social trust. Third, people with better evaluation of governments, media, and consumer associations, or worse evaluation of trade unions have more social trust. Moreover, the paper also supports the ¡°the pattern of difference sequence¡± of the distribution of various trust measures. Current study provides a systematic social trust development view for the formation of a harmonious society in China. To improve people's social trust, it is not only their own effort needed, but also stable and harmonious communities, better government quality, media monitoring, and development ofintermediate organizations such as consumer associations are also required.

Key Words: Social Trust; Personal Factors; Community Factor; Social Factors

JEL Classification:A14£¬Z13