¡¡¡¡¡¡¡¡¡¡¡¡Economic Research Journal (Monthly)Vol.43 No.12 December, 2008

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

Public Finance: Definition and Evolution

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Gao Peiyongª« (ª©4ªª)

Review of the Bashan Boat Conference in 1985

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Zhao Renweiª« (ª©17ªª)

Research on the Causes of China's Trade Surplus: Empirical Analysis Based

 on Intertemporal Optimizing Model of Consumption

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Zhao Wenjun and Yu Jinpingª« (ª©29ªª)

An Empirical Study on FDI International Knowledge Spillovers and Regional

 Economic Development in China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Chen Jiyong and Sheng Yangyiª« (ª©39ªª)

Research on New Keynesian Phillips Curve in China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..ª«Chen Yanbinª« (ª©50ªª)

Interest Rate Rule with a Role of Money and its Empirical Test in China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Zhang Yishan and Zhang Daiqiangª« (ª©65ªª)

Resource Inefficiency Not Resources Shortage Causing Higher Poverty in Inland ChIna¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­..Wan Guanghua and Zhang Yinª« (ª©75ªª)

The Effect of Population Aging on Consumption and Income Inequality in Rural China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Qu Zhaopeng and Zhao Zhongª« (ª©85ªª)

Effects of Adult Higher Education on Wages

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­ª«Xu Lingli, Feng Shuaizhang and Chen Xiaolong ª« (ª©100ªª)

Institution Background, Ownership Property and the Value of Corporate Cash Holdings

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..ª«Yang Xingquan and Zhang Zhaonanª« (ª©111ªª)

A Theoretical Analysis on Collective Reputation¡ª¡ªInside Adverse Selection within a Group

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­ª«Zhang Huª« (ª©124ªª)

Risk Budgeting Analysis Based on Multiª²factor Model and Research on Its Applica

tion in China¡­¡­¡­¡­¡­¡­¡­..Zhang Taiyuan, Yang Xiaoyan and Li Junfengª« (ª©134ªª)

A Book Review¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Lai Deshengª« (ª©145ªª)

A Summary for the Forum of Globalization and Economic Cooperation among ASEAN

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­ª«Li Ruilinª« (ª©150ªª)

Public Finance: Definition and Evolution

Gao Peiyong

£¨Institute of Finance & Trade Economics£¬CASS£©

Abstract: The article has its foothold on Chinese specific background of structural transition, and makes a systematic investigation on the origin and development of public finance. Then the author defines the denotation and connotation of this economic category on the basis of the above explanation.  The analysis tells us that pubic finance is proposed as a concept with Chinese Characteristics in order to solve China's own problems, if we jump from the limitation of academic thinking and focus on the historic process of China's fiscal reform.  Since the ¡°Public Characteristics" is the inborn nature of public finance, the construction road of Chinese public finance, which is different from fiscal system arrangements in planned economy era and concentrates on the continuous expansion of its coverage, has been a process that makes the traditional fiscal operating system and mechanism, and traditional public finance back to the track of ¡°Public Characteristics".  Standing at a certain height of institutional change, grasping the basic requirements of public finance system according to public idea and rules, and transforming Chinese public finance discipline and drawing the blueprint of Chinese fiscal reform, all of the above are the special mission for our generation.

Key Words:

Public Finance; Public Characteristics; Social Public Needs; Fiscal Reform and Development

JEL Classification:E60£¬E69

Review of the Bashan Boat Conference in 1985

Zhao Renwei

(Institute of Economics, CASS)

Abstract: The Bashan Boat Conference reflected the special backgrounds of the turning point of China's restructure from a planned economy to market economy and the macroeconomic management task facing the economic overheating in a transitional and new market economy during 1984¡ª85. The representatives of the conference came from Western countries, East Europe and China. It focused on the economic reform targets, transitional processes, macroeconomic conditions and policies. The paper then raises some viewpoints about China's further reform suggestion in line with the lessons of reform and openingª²up in China for the three decades.

Key Words:Target Pattern; Evolutional Way; Twoª²track System;  Indirect Regulation; Reform

 Cost

JEL Classification:P20, P27, P29

Research on the Causes of China's Trade Surplus:

Empirical Analysis Based on Intertemporal

Optimizing Model of Consumption

Zhao Wenjun and Yu Jinping

(School of Economics, Nanjing University)

Abstract:Based on the intertemporal optimizing model, using Johansen cointegrating technique, Granger causality test and VEC model, this paper investigates the causes of China's trade surplus from 1978 to 2006. Empirical test shows that in the long run, China's real capital stock and real user cost of capital are related to trade surplus positively and significantly. The consumer's real wealth and government's real consumption expenditure in China are related to trade surplus negatively and significantly. Increasing quickly in the real capital stock and  increasing slowly in the real wealth are the causes of China's trade surplus. However, the shortª²run relationship between the real capital stock and the realtrade surplus is contrary to the longª²run relation, and the shortª²run relationship between the consumer's real wealth and the real trade surplus is also contrary to the longª²run relationship.

Key Words:China's Trade Surplus; Interª²temporal Optimizing Model of Consumer; Johansen Coª²integrating Theory; Granger Causality Test; VEC Model

JEL Classification:D920, F140,  F430

An Empirical Study on FDI International Knowledge Spillovers

and Regional Economic Development in China

Chen Jiyong and Sheng Yangyi

(Economics and Management School, Wuhan University)

Abstract: This article has constructed a framework to analysis the relationship between national innovation investments, international knowledge spillover due to FDI and regional technological progress. We use the panel data sample in 1992¡ª2006 from China's 29 provinces (municipalities and autonomous regions) to test the impact of China's regional R & D investments, international knowledge spillovers of FDI on its regional technological progress. It reveals that the local investments in science and technology are the most important factors to promote technological progress; for the structure and quality of China's current FDI, the knowledge spillover effects from FDI, especially through the FDI enterprises' manufacturing activities, are not obvious; the local gains in its technology development from FDI depends on its economic and technological level. Based on the above conclusions we promote the corresponding policy recommendations for strategies of China's FDI attraction and regional economic development.

Key Words: FDI; Knowledge Spillover; Regional Economic Development

JEL Classification:F21, O33, R11

Research on New Keynesian Phillips Curve in China

Chen Yanbin

(School of Economics, Renmin University of China)

Abstract: This paper presents a fourª²factor model of New Keynesian Phillips Curve, including the demand pull inflation, cost push inflation, inflation expectation, and inflation persistence. The new model extends Gordon's (1996) triangle model and Gal¨ª and Gertler's (2000) hybrid model, and it is theoretically complete. This paper tests the new model by using China's data, in which the inflation expectation is based on the microª²survey data. The results show that the OLS estimates of the new model are more robust than GMM estimates. Among the four factors of inflation, the inflation expectation has the most significant effect on the inflation, followed by inflation persistence and the unit labor cost or the output gap, and the oil price shock has an insignificant effect.

Key Words:Newª²Keynesian; Phillips Curve; Inflation; Expectation; Macroeconomy

JEL Classification:E31, E41, E17

Interest Rate Rule with a Role of Money and its Empirical Test in China

Zhang Yishanª¬ª©a,bªª and Zhang Daiqiangª¬b

(a:Quantitative Research Center of Economics of Jilin University; b:Business Co

llege of Jilin University)

Abstract£ºThe paper designs an optimal interest rate rule with a role of money by theoretical analysis based on the new Keynesian model and a money demand function. This rule indicates that if either the weight of money growth rate stability or interest rate coefficient of the money demand function is bigger, the responding coefficient of money growth rate is increasing, monetary policy becomes more aggressive. Then, we use both linear regression method and threshold regression method to make an empirical analysis on the reaction function with China¬ðs data, respectively. The results show that all coefficients of inflation, product gap and money growth rate are bigger than zero, which implies that when economic development deviates from either equilibrium state or central bank¬ðs target, the interest rate rule could conduct that the central bank would take correct measures in order to make sure the stability of economic development. Moreover, we find that all coefficients in the regime of high money growth rate increase are bigger than those in the regime of low money growth rate increase.

Key Words£º Interest Rate Rule; Money; Reaction Function; Threshold

JEL Classification£ºC520, E420, G100, P340

Resource Inefficiency Not Resources Shortage Causing

Higher Poverty in Inland China

Wan Guanghua and Zhang Yin

(College of Finance and Economics, Yunnan University of Finance and Economics,

China; School of Economics, University of Dundee, UK)

Abstract£ºIn the spirit of the wellª²known Oaxacaª²Blinder framework, a decomposition technique is developed for measuring contributions of various factors to poverty difference over time or across space. When applied to Chinese data, it is found that inland China is poorer than coastal China, mainly due to lower efficiency in resource utilization not to less endowment of resources. Also, trade became povertyª²reducing in coastal China in the late 1990s but remained povertyª²inducing in inland China. Policy implications are briefly discussed.

Key Words£º Poverty; Regressionª²based Decomposition; China

JEL Classification£ºI32, D33, C43

Effects of Adult Higher Education on Wages

Xu Lingliª¬a, Feng Shuaizhangª¬ª©a,bªª and Chen Xiaolongª¬c

(a: Shanghai University of Finance and Economics;

b: Princeton University; c: National Bureau of Statistics)

Abstract£ºUsing a unique urban household survey data in 2007 that is nationally representative, we examine returns to a tertiary degree in China, paying special attention to the difference between regular higher education and adult higher education. We found that for people with a Bachelor¬ðs degree, the return is 0.17 lower for those who got the degree through adult education programs. Nevertheless, for those with an associate¬ðs degree, the returns are similar. Our results

suggest that adult higher education programs that offer Bachelors degrees need serious restructuring to position themselves in today¬ðs higher education system.

Key Words£ºReturn to Schooling; Adult Higher Education; Fourª²year College; Junior College

JEL Classification£ºC130, I230

Institution Background, Ownership Property

and the Value of Corporate Cash Holdings

Yang Xingquan and Zhang Zhaonan

£¨Economic and Trade School, Shihezi University£©

Abstract: Based on the valuation regressions of Fama and French£¨1998£©,this paper investigates the market value of cash holdings of listed corporate in China. We show that market value of cash holdings is less than book value wholly; furthermore, we show that ownership quality affects the value of cash holdings, and state ownership reduces the market value of cash holdings. This study supports the viewpoints that Chinese investor protection is poor, and agency problem of listed corporate is serious from value of cash holdings, our paper also provides evidence on the free cash flow hypothesis and tunneling in listed corporate of China.

Key Words:Institution Background£»Ownership Property£»Corporate Governance£»Value of Cash

Holdings

JEL Classification:G320£¬G380

Risk Budgeting Analysis Based on Multiª²factor Model

and Research on Its Application in China

Zhang Taiyuan, Yang Xiaoyan and Li Junfeng

(School of Economic and Business Management of Hunan University; Risk Management

Department of China Galaxy Securities; School of Finance,Central University of Finance and Ec

onomics)

Abstract: Risk budgeting, which based on the risk allocation, is a new technique of portfolio management, and is still a new concept in China. Therefore, it is meaningful to discuss the topic of applying risk bugeting to the asset management for domestic institutional investors in this paper. We start research from the data of China yield curve, then analyse and find the main component of yield curve and other assets, building the multifactor model of assets allocation. Finally we discuss the strategic asset allocation under the framework of assets and liabilities. So we can provide the investors the decision reference with risk budgeting model of risk management in furture risk management practice.

Key Words:

Risk Budgeting; Multifactor; Principal Component; Strategic Asset Allocation

JEL Classification:G110,G310

A Theoretical Analysis on Collective Reputation

¡ª¡ªInside Adverse Selection within a Group

Zhang Hu

(School of Economics, the Central University of Finance and Economics)

Abstract:Reputation theory is based on a repeated game by introducing adverse selection. Traditionally, it shows how the players achieve cooperative equilibrium in a nonª²cooperative game by building up individual reputations. However, when individual information cannot be transmitted, the public will form a judgment on the whole group formed by several individuals with the same title. Therefore, the traditional individual reputation does not work any more. Instead, collective reputation will affect the individuals' benefits. This paper investigates the problem of collective reputation within a group which is made up of different types of individuals. We name such a case as inside adverse selection. By building up a theoretical model, we find that the difference between individual and collective interests might lead the effect of collective reputation weaker than that of traditional individual one. Moreover, although the group can find a way to encourage its members, the inconsistency between collective and social benefits will induce the overall inefficiency if the public don't update their beliefs sensitively.

Key Words:

Collective Reputation£» Inside Adverse Selection£» Belief Updating

JEL Classification:C720, D830

The Effect of Population Aging on Consumption and

Income Inequality in Rural China

Qu Zhaopengª¬ª©a, cªª and Zhao Zhongª¬ª©b, cªª

(a: School of Economics and Business Administration, Beijing Normal University;

b: School of Labor and Human Resources, Renmin University of China;

c: Institute for the Study of Labor)

Abstract£ºThis paper investigates the relationship between consumption, income inequalities£¬age and population aging in rural China based on the life cycle model. Using 1988, 1995 and 2002 three waves of rural household surveys in China Household Income Project, we apply analysis of variance and regression decomposition methods to decompose the consumption and income inequalities in rural China into three parts: cohort effect, age effect and population aging effect. The results show that consumption inequality is smaller than income inequality in rural areas, within cohort effect dominates other effects in every period, and population aging only plays a small role on the inequality increasing in rural China.

Key Words£º Aging; Lncome; Consumption; Inequality; Lifeª²cycle Theory

JEL Classification£ºI30, J19, D63, O18