¡¡¡¡¡¡¡¡¡¡¡¡Economic Research Journal (Monthly)Vol.44 No.1 January, 2009

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

Transformation of Growth Pattern and Growth Sustainability in China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Wang Xiaolu, Fan Gang and Liu Pengª« (ª©4ªª)

Income Inequality, Urbanization and Economic Growth: A Demandª²side Analysis

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Shen Ling and Tian Guoqiangª« (ª©17ªª)

The Basics of Political Economy for Harmonious Society

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Yang Chunxueª« (ª©30ªª)

The Political Economy of Price Scissors in China: Theoretical Model and Empirical Evidence

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Justin Yifu Lin and Yu Miaojieª« (ª©42ªª)

Government Size, Market Development and Corruption

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­ª«Zhou Li'an and Tao Jingª« (ª©57ªª)

The U Curve of Labor Share in GDP during Economic Development

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..David Daokui Li, Liu Linlin and Wang Honglingª« (ª©70ªª)

China's Rural Consumption Behavior Changes and Ruralª²Urban Mechanism

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Zhou Jian and Yang Xiuzhenª« (ª©83ªª)

Rural Households' Bufferª²stock Saving with Habit Formation

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Hang Binª« (ª©96ªª)

Expectation, Excess Liquidity and Inflation Dynamics in China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­ª«Yang Jishengª« (ª©106ªª)

China's Electricity Demand Forecast under Urbanization Process

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­He Xiaoping, Liu Xiying and Lin Yanpingª« (ª©118ªª)

Managerial Overconfidence, Firm Expansion and Financial Distress

¡­¡­¡­¡­¡­¡­¡­ª«Jiang Fuxiu, Zhang Min, Lu Zhengfei and Chen Caidongª« (ª©131ªª)

Knowledge Spillovers: A Survey of the Literature

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Zhao Yong and Bai Yongxiuª« (ª©144ªª)

Comparative Advantage, Large Country Advantage and China's Economic Development

Strategy: A Summary for Big Power Strategy Forum in HBS in 2008

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..ª«Liu Siwei, Du Yan and Luo Huihuaª« (ª©157ªª)

Transformation of Growth Pattern and Growth Sustainability in China

Wang Xiaoluª¬a, Fan Gangª¬a and Liu Pengª¬b

£¨a:National Economic Research Institute, China Reform Foundati

on; b:Comprehensive Department, Ministry of Commerce£©

Abstract:

This paper employs a Lucasª²typed growth model to examine transformation of China's growth pattern, and finds that TFP in China is increasing during the reform period. It was around 3.6% during the past decade. The sources of TFP is changing; technological progress and internal sourced efficiency improvement is replacing external sourced efficiency increases. In terms of inputs, the traditional role of quantity expansion of labor force in economic growth has at least partially been replaced by quality improvement in human capital, resulting from improved education. The international economic crisis will affect China's economic growth, but not unsurmountable. Our empirical study finds that some internalnegative impacts on TFP are more important, i.e., the expansion of the government administrative cost, and the continued decreases in final consumption ratio to

 GDP. Given that these problems can be solved, China can still sustain a growth rate above 9% till year 2020.

Key Words: Economic Growth; Transformation; Sustainability; TFP

Income Inequality, Urbanization and Economic Growth:

A Demandª²side Analysis

Shen Ling and Tian Guoqiang

(School of Economics, Shanghai University of Finance and Economics)

Abstract:Urbanª²rural disparity is an important source of income inequality in China. This paper investigates the demandª²side effect of income inequality on economic growth. Income inequality can be measured by the population share of the rural residents and their relative income. Economic growth is represented by quality improvement driven by innovations of monopolistic firms. Since rich consumers are more willing to pay high prices for the better quality than the poor, the firms' profit depends on the income disparity of consumers At the separating equilibrium, goods of different quality levels are sold to different consumers. A higher relative income of the urban residents is good for innovations, but a larger population share of the rural residents is bad for innovations. Our empirical evidence supports our theoretical prediction.

Key Words:Inequality; Urbanª²rural Disparity; Urbanization; Economic Growth

JEL Classification:D31, D43, O12, O15

The Basics of  Political Economy for Harmonious Society

Yang Chunxue

(Institute of Economics,CASS)

Abstract:The article's views is that free market will creates efficiency ,but will not produce social welfare automatically, and that wise social policy is compatible with individual freedom. The view is proved by the individual social preference that people reveal in face of some stochastic pattern. After removing the effects of one' special status on his subjective preference with the aid of the conception of veil of ignorance, we will prove by interpersonal utility comparisons that every body would reveal his social or ethic preference same as below:(1)preference for just institutional arrangements  which will relieve the accumulating effects of stochastic factors(specially class status of one's family and luck) on individual' future.(2)preference for redistribution ,this preference transform individual dislike to social  inequity  into his aversions to risk and uncertainty .These preferences would be results of rational individual's voluntary choice .Thus the wise social policy which will realize these preferences is not conflicts with individual freedom. On basis of these ideas ,we can discuss particular problems of social policy logically.

Key Words:Social Justice£»Veil of Ignorance£» Social Preference of Redistribution£» Interpersonal Utility Comparisons

JEL Classification:D60£¬D70

The Political Economy of Price Scissors in China:

Theoretical Model and Empirical Evidence

Justin Yifu Linª¬a and Yu Miaojieª¬b£¨a:World Bank; b:CCER, Peking University£©

Abstract:The Sahª²Stiglitz ¡°Economics of Price Scissors¡± model on the political economy of price scissors derives the optimal terms of trade against peasants. By extending this model to an open economy and allowing agricultural rationing, we first check if the model stands up to China's data and, if so, we estimate its key structural parameters. Using provinceª²level panel data from 1949¡ª1992, we find that the importance of peasants in China's governmental objective function is less than the importance of workers. In addition, the importance of peasants' welfare is also less than that of capital accumulation. Such findings are consistent the reality of China.

Key Words:Trade£»Political Economy£»Price Scissors£»Governmental Objective Function

JEL Classification:F10, O10

Government Size, Market Development and Corruption

Zhou Li'anª¬a and Tao Jingª¬b

(a:Guanghua School of Management, Peking University; b:China Center f

or Economic Research, Peking University)

Abstract£ºUsing a panel data at the provincial level during the period 1989¡ª2004, this paper examines the effects of government size, privatization, openness, and education on regional corruptionª± Applying a fixedª²effect model and IV estimation, we find that government size positively affects the incidence of corruption, and the effect becomes larger for the increase in the size of the ¡°core¡± government sector. A one percent increase in the core government sector leads to a 0ª±68¡ª1% increase in bureaucrat corruption. While FDI penetration is positively associated with corruption, the ratio of imports and exports to GDP is negatively associated with corruption. The impact of privatization on corruption is ambiguous. We also identify the significant impacts of the size and structure of government expenditures on corruption.

Key Words£º Corruption; Market Development; Government Size

JEL Classification£ºK42, H11, H83

The U Curve of Labor Share in GDP during Economic Development

David Daokui Liª¬a, Liu Linlinª¬a and Wang Honglingª¬b(a: School of Economics and Management, Tsinghua University; b: Institute of Economics, CASS)

Abstract£º

Labor share in GDP is key to understanding income distribution, it is a foundation for analyzing investment, savings, and consumption in an economy, also reveals microeconomic behavior of the economy. This paper is to document the evolution of labor share in the Chinese economy and to explore possible explanations of the evolution of labor share. Labor share in the Chinese economy has been decreasing and is lower than those of developed countries. In our study, we find labor share in economic development seems to follow a U shaped curve, the lowest point is USD 6000 per capita PPP (2000 constant), the Chinese economy seems to follow this pattern so far, and other factors affecting labor share in China include industry structure and labor¬ðs bargaining power. We suggest a theoretic model to explain the U shaped curve: the labor forces are different from capital, which have friction in the transfer period between different sectors. In the beginning of the transfer period, the income of labor in the industry sector is lower than the marginal production, so the labor share is decreasing in the beginning of the economy development. When the labor force transformation is almost complete, the labor income share will increase. In our study we expect the labor income share will rise in two years.

Key Words£º Primary Income Distribution; Labor Share; GDP

JEL Classification£ºE25, J30, O50

China¬ðs Rural Consumption Behavior Changes and

Ruralª²Urban Mechanism

Zhou Jianª¬a and Yang Xiuzhenª¬b

(a£ºSchool of Economics, Shanghai University of Finance and Economics; b£ºChina Construction Bank)

Abstract£ºThis paper analyzes rural consumption structural of China through building a model with demonstrating function and tests all the involved variables using Gibbs sampling on random level shift model. We found the important factors accounting for rural consumption behavior, Through analyzing, we conclude: the structural changes indicate that the influence of urban consumption behavior on the rural has changed; rural preventive saving motivation can be explained by Urbanrural linkage mechanism; the important structural changes of seven consumption variables can indicate the degree of urban influence on rural behavior.

Key Words£º Rural Consumption; Demonstrate Effect; Gibbs Sampling; Rural and Urban Linkage

JEL Classification£ºC22,E21,R58

Rural Households' Bufferª²stock Saving with Habit Formation

Hang Bin

(Shanxi University of Finance and Economics)

Abstract:

This paper incorporates bufferª²stock saving model with habit formation and the data of rural households in China's 25 provinces from 1992 to 2005 are used for an empirical study. Estimated results show that: 1. Both of habit formation and income uncertainty are important explanatory variables for rural households' consumption behavior. 2. The larger habit formation parameter becomes, the lower MPC is. That means consumer behavior under habit formation is similar to the behavior induced by prudence. 3. In addition, high saving rate also increases ability to resist risk, so the stronger habit is, the less income uncertainty will influence consumption. 4. Bufferª²stock saving model without habit formation largely underestimated rural households' prudence and patience, for households will have higher wealth targets if their consumption follows a habit.

Key Words:Habit Formation£»Bufferª²Stock Saving£»Consumer Behavior of Rural Households

JEL Classification:D81, D91, E21

Expectation£¬Excess Liquidity and Inflation Dynamics in China

Yang Jisheng

(School of Economics, Huazhong University of Science and Technology)

Abstract£ºBy Introducing the shocks resulted from individual activities into the Hybrid New Keynesian Phillips Curve, we investigate the inflation dynamics and the effect of excess liquidity in China. According to the GMM estimation result£¬some sound conclusions can be drawn. Firstly, the empirical results indicate that the HNKPC is consistent with the nature of inflation dynamics in China, which posits the inflation dynamics as the combination of backward looking adaptively expectations and forward looking rational expectations. Moreover, defining excess liquidity by M2, the elasticity of inflation defined by CPI to excess liquidity is approximately unit, which reveals that the quasiª²money is the main force behind inflation. The nature of inflation expectation and the effect of excess liquidity all provide the evidences that tight monetary policy is effective to curbing inflation in China.

Key Words£º Inflation; Hybrid New Keynesian Phillips Curve; Expectation; Excess Liquidity

JEL Classification£ºC33, E31, E51, R12

China's Electricity Demand Forecast under Urbanization Process

He Xiaoping£¬Liu Xiying and Lin Yanping

(China Center for Energy Economics Research, Xiamen University)

Abstract:The rapid urbanization process in China will likely end in 2020 and China will then become a middle income country. Previous studies in related literature on electricity demand gave no consideration on the role of urbanization process. To obtain reliable China's power demand forecast, we for the first time introduce factor of urbanization into the models of electricity demand and use the methods of coª²integration analysis and nonlinear regression applying to panel data. The results from both approaches are consistent and in fact, very close. The results of both methods indicate that there exists a significant correlation between the electricity demand and urbanization. We found that the recent rapid growth of electricity demand in China comes mainly from its accelerating process of urbanization and the industrialization that required in a rapid urbanization process. According to our demand forecasting, the electricity consumption in China will still be increasing significantly and the per capita consumption in 2020 will be about 5000 kWh. In its urbanization process, China's electricity demand will have some similar characteristics as those once appeared in their urbanization processes of other developed countries.

Key Words:Electricity Demand£» Urbanization£» Industrialization

JEL Classification:O18£¬Q43

Managerial Overconfidence, Firm Expansion and Financial Distress

ª«Jiang Fuxiu, Zhang Min, Lu Zhengfei and Chen Caidongª«

Abstract:

Based on the data of Chinese listed companies from 2002¡ª2005, we study the relationship between managerial overconfidence and firm expansion. We find that managerial overconfidence influences significantly the velocity of firm expansion, and it is significantly positive with firm total investment and internal expansion, and the degree of positive relationship is more when the firm has more cash flow. And we also find an interesting result that there is a negative relationship between managerial overconfidence and M&A, but not significant. Furthermore, we study the relationship of managerial overconfidence, firm expansion and firm's performance by use of SEM model. We find that the investment of firms with overconfident managers will cause them into financial distress.

Key Words:Managerial Overconfidence; Firm Expansion; Expansion Velocity; Expansion Approaches; Financial Distress

JEL Classification:D21£¬G39

Knowledge Spillovers: A Survey of the Literature

Zhao Yong and Bai Yongxiu

(School of Economics and Management, Northwest University)

Abstract:The concept of knowledge spillovers is important in explaining agglomeration, innovation and regional growth. Great deals of literature have deeply dealt with it in a space perspective since 1990s, especially in the context of city and region. The paper provides a survey of theoretical and empirical findings about knowledge spillovers in the filed of regional and urban studies, especially focus on the geographical mechanisms of knowledge spillovers, how geographically limited knowledge spillovers can help to explain agglomeration, innovation and regional growth. It also indicates the tendency of research method and content in space perspective.

Key Words:Knowledge Spillovers; Innovation£»Agglomeration; Knowledge Production Function; Regional Growth

JEL Classification:R11, R12, O18, O33