¡¡¡¡¡¡¡¡¡¡¡¡Economic Research Journal (Monthly)Vol.43No.5May, 2008

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

Foreign Shocks and China's Inflation¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Research Groupª« (ª©4ªª)

Environmental Regulation and Total Factor Productivity Growth:

An Empirical Study of the APEC Economies

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Wang Bing£¬Wu Yanrui and Yan Pengfeiª« (ª©19ªª)

Firm Concentration£¬Technology Promotion and Economic Performance£ºAn Empirical Study on the Cluster Effects in China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Zheng Jianghuai, Gao Yanyan and Hu Xiaowenª« (ª©33ªª)

Education£¬Human Capital and Regional Economic Differentials

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Yao Xianguo and Zhang Haifengª« (ª©47ªª)

Competition among Jurisdictions, Strategical Fiscal Policies, and Regional Characteristics of FDI's Growth Achievements

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Li Yongyou and  Shen Kunrongª« (ª©58ªª)

Fiscal Transfers and Expansion of Fiscal Dependents in China's fiscal Recentralization

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Yuan Fei, Tao Ran, Xu Zhigang and Liu Mingxingª« (ª©70ªª)

The Effects of Fiscal and Monetary Policy on Private Investment¡ª¡ªAn Application of Directed Acyclic Graphs¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Yang Zihuiª« (ª©81ªª)

Chinese Oil and Gas Depletion Costs and Macroeconomic Impacts of Resource Tax

ª« ¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Lin Boqiang and He Xiaopingª« (ª©94ªª)

Technology Spillover Effects by Undertaking International Software Outsourcing in China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Liu Shaojianª« (ª©105ªª)

Limited Corruption in Sealedª²Bid Auctions

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Tian Guoqing and Liu Chunhuiª« (ª©116ªª)

A New Approach for General Equilibrium with Discontinuous Excess Demand Function

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Xie Zhipingª« (ª©128ªª)

The ¡°Rich Neighborhood Effect" versus the Balassaª²Samuelson Effect:

An Incomeª²Based Theory of Real Exchange Rates

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Tang Xiangª« (ª©138ªª)

The Mechanisms of Rural Credit Market in Modern China

¡ª¡ªA Research Based on Raw Documents

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Peng Kaixiang, Chen Zhiwu and Yuan Weipengª« (ª©147ªª)

External Shocks and China's InflationResearch Group of China's Growth and

Macroeconomic Stability

(Institute of Economics,CASS)

Abstract:

Our paper firstly fully examines the stylized facts of the translation of global liquidity, transmission of international commodity price, the contractionary effects of RMB appreciation, and the factor price distortion enhanced by the external shocks, and then uses the extension of Phillips Curve and VAR model to test the impacts of external shocks on domestic inflation. The regression results indicate that: in the short run, world food price is the main reason for domestic inflation; the influence of world oil price on inflation will take effect in the medianª²toª²long run; the RMB appreciation is contractionary through a relatively long time; world interest rate has certain impact on domestic price; and the translation of global liquidity has no significant effects on domestic price due mainly to the successful sterilization. In sum, GDP is still the root cause of inflation and the external shocks are just part of the reasons. Therefore, keeping the moderate rather than excessively fast growth rate, adjusting the distorted fact price in order to control the investment demand, increasing the flexibility of exchange rate regime for the independent monetary policy as the first line of defense against external shocks would be the fundamentals to curb inflation.

Key Words:External Shocks£» Inflation£» Phillips Curve£» VAR Model

JEL Classification:E310£¬F430

Environmental Regulation and Total Factor Productivity Growth:

An Empirical Study of the APEC Economies

Wang Bing£¬Wu Yanrui and Yan Pengfei

(Economics School, Jinan University£»Business School£¬

University of Western Australia£» Economics and Management School, Wuhan U

niversity)

Abstract:

This paper applies Malmquistª²Luenberger index method to measure TFP growth and its components in a sample of 17 APEC economies over the period 1980 to 2004 while accounting for COª­2 emissions. Firstly, we estimate and compare three type productivity indices according to three scenarios£¬from no constraints on COª­2 emissions, to no increase over current levels, to a partial reduction. Secondly, we empirically examine the causes of productivity changes while accounting for environmental regulation. The major conclusions are as follows: With accounting for environmental regulations, TFP growth for 17 APEC economies on average is slightly higher than that without regulations, and technical progress is the main source. Out of 17 economies, seven different economies shifted the frontier at least once. GDP per capita, industrialization, technical inefficiency, capital labor ratio, energy use per capita and the openness have a significant, negative effect on the productivity index with environmental regulations.

Key Words:Environmental Regulation£»TFP£»Directional Distance Functions£»Malmquistª²Luenberger Index£»Data Envelopment Analysis

JEL Classification:D24£¬O47£¬C61

Firm Concentration£¬Technology Promotion and Economic Performance£º

An Empirical Study on the Cluster Effects in China

Zheng Jianghuaiª¬ª©1,2ªª, Gao Yanyanª¬2, Hu Xiaowenª¬2

(1.Center for the Yangtze River Delta's Socioª²Economic Development of Nanjing U

niversity£» 2.School of Economics, Nanjing University)

Abstract:

Based on microª²firm data of development zones in Jiangsu Province along the Yangtze River, the effects of local factors special to development zones and of technology promotion on firm's performance are tested, from which we try to illustrate the nature and dynamics of industrial clusters built on development zones. The results show that the primary reasons firms locate into development zones are not clustering benefits in general meaning brought by interactions amon

g firms locally concentrated, but are the attraction of ¡°policy rents" brought by government behaviors. Once located in the zone, the firm is doom to interact with local government as well as industryª²related factors not necessarily concentrating in location, and the clustering effects may emerge. Thus, the key to keep development zones' competition sustainable, when industry transfer and policy adjustment fade away ¡°policy rents", is to cultivate clustering effects.

Key Words:Development Zones along Yangtze River; Firms' Spatial Concentration;

Industrial Clustering Effects; Technology Promotion; Policy Rents

JEL Classification:H590£¬O140

Education£¬Human Capital and Regional Economic Differentials

Yao Xianguo and Zhang Haifeng

(College of Public Administration and College of Economics, Zhejiang University)

Abstract:

By applying the dynamic panel data method advocated by Arellano and Bond and the standard fixed effect method, this paper focuses on the effects of education on regional economic differentials in the growth regression framework. The empirical results show that the educational improvement of laborª²force does have a significantly positive effect on the economic growth, and to a certain extent there exists schooling externalities. However, compared with physical capital, yet the differences in education are not the major cause of regional economic differentials. Additionally, our growth regressions also indicate a strong conditional convergence in levels of per capita income across China's provinces. Several explanations of the results are then presented.

Key Words:Human Capital; Regional Differential; Return to Education; GMM

JEL Classification:R11,O11

Competition among Jurisdictions, Strategical Fiscal Policies,

and Regional Characteristics of FDI¬ðs Growth Achievements

Li Yongyou and Shen Kunrong

(Postª²doctorate Workshop of Theoretical Economics, Nanjing Universit

y;School of Economics, Nanjing University)

Abstract£ºBased on the view of finance, this text makes a positive analysis on competitive strategies among jurisdictions,its transforming characteristics along the time, and its effects on FDI's growth achievements. It concludes: The choice of fiscal policies among jurisdictions takes on obvious strategies because of externality of competition, moreover, competition of tax price is always the main characteristic of jurisdiction competition in China. But along with the time, the competition strategies are expanding from the pure tax price to the expenditure domain. Because of the differences of economic development level, that jurisdictions choice competition objects becomes more rational, the extent that fiscal expenditure depends on the nonª²tax revenue rises by different extents, the structure of fiscal expenditure is distorted by different extents. Dependence on the nonª²tax revenue and distortion of expenditure structure not only suppress thecapacity that jurisdictions absorb in FDI¬ðs spillover effects, and also have a negative influence on FDI¬ðs growth achievements, which is higher in eastern area than in the midª²west area.

Key Words£º Competition among Jurisdictions£» Strategical Fiscal Policies£» Economic Growth

JEL Classification£ºH730,H770

Fiscal Transfers and Expansion of Fiscal Dependents

in China¬ðs fiscal Recentralization

Yuan Feiª¬a, Tao Ranª¬a, Xu Zhigangª¬a and Liu Mingxingª¬b

(a: Center for Chinese Agricultural Policy, Chinese Academy of Sciences£»

b: China Institute for Education Finance Research£¬ Peking University£» China Ec

onomy and Management Academy, Central University of Economics and Finance)

Abstract£ºBased on the theoretical literature of fiscal decentralization, we discuss the evolution of interª²governmental fiscal arrangements and analyze the impacts of increasing central transfers on local growth of fiscal dependents in the past decade. Using a countyª²level panel data set from 1994ª²2003, we identify the causality from the growth fiscal transfers to the expansion of fiscal dependents empirically through an instrumental variable approach. It is argued that under China¬ðs current governance regime, provisioning of either general purpose transfer or earmarked transfer would lead to serious problems. The policy implication is that a governance system that grants local governments higher fiscal power while at the same time hold them more accountable to local constituency is necessary for China to control government expansion and provide effective public services.

Key Words£º Fiscal Centralization; Transfers; Expansion of Fiscal Dependents

JEL Classification£ºH710£¬H730

The Effects of Fiscal and Monetary Policy on Private Investment

¡ª¡ªAn Application of Directed Acyclic Graphs

Yang Zihui

(School of Lingnan, Zhongshan University)

Abstract£º

Based on the more recently developed technique of directed acyclic graphs (DAG), this paper studies the effects of fiscal and monetary policy on private investment, and then investigates the relative effectiveness of policy tools and their dynamic relationships. The results indicate the credit channel plays a more important role in transmitting monetary policy, however, there is great limitation in the credit channel because of the block in the transmission from money supply to credit. We also found that fiscal policy to be more important and exogenous than monetary policy. Recursive forecast error variance decompositions indicate the conclusions are robust. Applying the new DAG technique not only extends our understandings about the contemporaneous causal relationships between the policy tools and the real economic activity but also overcomes the limitation of conventional methods such as Granger causal tests, then it improves the reliability and rationality of the empirical framework and also provides the important references for future macroeconomic policies to be chosen and arranged.

Key Words£º Monetary Policy; Fiscal Policy; Private Investment;

Directed Acyclic Graphs; Recursive Forecast Error Variance Decompositions

JEL Classification£ºC320, E630

Chinese Oil and Gas Depletion Costs and Macroeconomic

Impacts of Resource Tax

Lin Boqiang  and  He Xiaoping

(China Center for Energy Economics Research at Xiamen University)

Abstract:

Because of the scarcity of nonrenewable energy resources, their current exploitations have impacts on both future generation's welfare and sustainable economic development. Applying the user cost approach developed by El Serafy, we estimated the depletion costs of the Chinese oil and gas resources. The results indicate that while China in the recent years accelerated utilization of oil and gas resources, the user costs from their exploitation have been greatly increasing. Imposing resource tax to reflect scarcity in resource prices will correct the current undervaluation of energy resources and distortion of energy prices. The quantitative analysis of CGE model indicates that a resource tax under 20% on oil and gas will not have large negative impact on macroª²economy. The results also show that resource tax could take into account the impact of energy resource depletion on future generation's welfare and will have great significance for sustainable development.

Key Words: Resource Depletion; Resource Tax; Economic Impact

JEL Classification:C530, D430, D480

Technology Spillover Effects by Undertaking International

Software Outsourcing in China

Liu Shaojian

£¨Policy Research Bureau of Beijing Municipal Government£©

Abstract:

This article focuses on the technology spillover effects by undertaking international software outsourcing projects in China. The author argues China can improve the innovation capability of local enterprises through technology spillover effects brought by undertaking international software outsourcing projects. The article argues that technology spillovers are largely through the demonstration effects of multinationals. This article suggests the Chinese government keep up the openingª²up policy for China's software industry, introduce and create conditions for multinationals to set up highª²level software R&D centers in China and to spur their exchanges and cooperation with local universities, institutes and software enterprises. And the Chinese government should also render support to local software enterprises in undertaking international software outsourcing projects so they can get into contact, introduce and absorb advanced software technologies to boost their innovative capability in software.

Key Words: Undertaking£» International Software Outsourcing£» Technology Spillovers

JEL Classification:G320£¬G340£¬G390

Limited Corruption in Sealedª²Bid Auctions

Tian Guoqing and Liu Chunhui

(Shanghai University of Finance and Economics; School of Economics at Huazhong U

niversity of Science and Technology, Wuhan University of Technology)

Abstract:

This paper investigates the effect caused by the auctioneer's limited corruption in first price sealedª²bid auction mechanism, where only the briber and bidder knows the existence of this corruption and all other bidders do not. In second price sealedª²bid auction, the corruption behavior does not affect the bidders' behavior andthe outcome, since bidding the true valuation constitutes the weak dominant strategy. With regard to the first price sealedª²bid auction, changes are distinct due to the limited corruption. In equilibrium, the highest bid of the briber will be more aggressive than the bid of any other bidder, which leads to decrease in other bidders' winning probabilities and increase in the briber's winning probability, and the other bids of the briber will be less aggressive than the bid of any other bidder. The briber's expected payoff rises where her expected payment

might be less than the counterpart of the corresponding standard first price auction. Specifically, the briber's bidding strategy differs from normal intuition if the briber has the right to submit more ¡°legitimate" bids. The expected revenue apparently decreases, which hurts the owner of the auctioned object.

Key Words:Sealedª²Bid Auctions ; Expected Payoff;Expected Payment;Limited  Corruption

JEL Classification:D440

A New Approach for General Equilibrium with

Discontinuous Excess Demand Function

Xie Zhiping

£¨The Center for Economic Research at Shandong University£©

Abstract:

Traditional ways to prove the existence of general equilibrium have to entail a common condition that the excess demand function must be continuous. This paper presents a new approach to change it. The technique used in this paper

 is that we tackle general equilibrium problem, which in fact is a static nonlin

ear programming problem, with dynamic programming. By this technique, it is stri

ctly proven that general equilibrium with discontinuous excess demand function s

till exists.

Key Words:Existence of General Equilibrium; Nonconvexity; Discontinuous Excess Demand Function; Dynamic Programming

JEL Classification:B41, C61, C62, D51

The ¡°Rich Neighborhood Effect¡± versus the Balassaª²Samuelson Effect:

An Incomeª²Based Theory of Real Exchange Rates

Tang Xiang

(School of Economics, Peking University)

Abstract:

As a standard explanation for national price levels, the Balassaª²Samuelson (BS) effect presupposes a homogeneous domestic labor force and interª²sectoral labor mobility. We propose a contrasting theory of the ¡°rich neighborhood effect,¡± which predicts high nontradables prices in rich countries with domestic labor force heterogeneity. The intuition is that if a country has a group of ¡°rich residents¡± (e.g. highly productive tradable sector workers, or owners of globally traded resources) whose combined hard currency income is large enough relative to its total population, nonª²tradables prices will be driven high by their demand. Moreover, for two kinds of tests commonly used in the literature, the above two effects are observationally equivalent, calling into question the soundness of many important empirical studies on the BS effect. The rich neighborhood effect also contrasts with the Linder effect.

Key Words:Balassaª²Samuelson£» Real Exchange Rates£» Nontradables Prices

JEL Classification:

F310, F410

The Mechanisms of Rural Credit Market in Modern China

¡ª¡ªA Research Based on Raw Documents

Peng Kaixiangª¬1, Chen Zhiwuª¬2 and Yuan Weipengª¬3

(1.Henan University; 2.Yale University; 3.Chinese Academy of Social Sciences)

Abstract:

Using data collected from raw documents, this paper researches the effect of transaction costs, information, customs, contract enforcement and other factors on the rural credit market of modern China, based on its specific institutions. It's shown that the hypothesis of competitive market with transaction costs can explain the characters of modern credit well. Especially for the explanation of usury and customary rate, it fits material better than traditional theory. Meanwhile, credit rationing based on interpersonal relationships shouldn't be ignored, which exposes the imperfect contract enforcement of traditional markets.

Key Words:Rural Credit; Transaction Costs; Contract Enforcement; Customs

JEL Classification:G14, N25, N45, Q14