CONTENTS

Flying Geese within Borders: How China Sustains Its Labor Intensive Industries?

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Cai Fang£¬Wang Dewen and Qu Yueª« (4)

The Logic and Method on Macroeconomic Analysis of Chinese Economy

............................................................................................................................Liu Yingqiuª« (15)

The Asymmetric Reaction of Monetary Policy to Inflation and Real GDP in China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Ouyang Zhigang and Wang Shijieª« (27)

Financial Capital Formation and Economic Growth

.......................................................................Wang Dingxiang, Li Lingli and Ran Guangheª« (39)

Empirical Study on Total Factor Productivity of China's Listed Commercial Banks

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Cai Yuezhou and Guo Meijunª« (52)

Studying on the Welfare Effects of VAT and Business Tax

¡­¡­¡­¡­¡­¡­.Ping Xinqiao, Liang Shuang, Hao Chaoyan, Zhang Haiyang and Mao Liang  (66)

International Intra-product Specialization and Developing Countries' Upgrading Value Chain

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...Tang Haiyan and Zhang Huiqingª« (81)

The Effect of Western Development Program and Regional Economic Convergence in China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Liu Shenglong, Wang Yahua and Hu Angangª« (94)

Firm Heterogeneity, Sunk Costs, Spillovers and Export Participation

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..Yi Jingtaoª« (106)

Access Pricing£¬Channel Competition and Regulation Failure

.........................................................................................................Shi Qi and Kong Qunxiª« (116)

The Effect of Vocational Training on Non-farming Incomes

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.Wang Haigang, Huang Shaoan, Li Qin and Luo Fengjinª« (128)

Entrusted Agency: Manager Behavior, Accounting Information Assurance and Investorsª«

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­...Long Xiaohai,Tian Cunzhi and Duan Wanchunª« (140)

A Summary for the Forum of Reform in Local Fiscal System

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Fu Runmin, Li Yan and Miu Xiaolinª« (152)

A Summary for the Forum of Real Estate Study

............................................................................................Liao Junping and Luo Danglunª« (156)

Flying Geese within Borders:

How China Sustains Its Labor intensive Industries?

Cai Fang, Wang Dewen and Qu Yue

(Institute of Popnlation and Labor Economics, CASS)

Abstract:During the current global financial crisis, regions, sectors, and enterprises with the outdated growth pattern, industrial structure inconsistent with their comparative advantages, and technological structure hanging behind the development stage were first exposed to the economic shocks. The way out thus is to reshape the economy¡¯s regional development pattern based on comparative advantage. Against the background of financial crisis and under the assumption of large economy, this paper extends flying geese paradigm and applies it to interpret regional growth pattern of the Chinese economy namely, a leapfrog type industrial structure evolution among regions. Empirical results show that the growth and contribution rates of total factor productivity in manufacturing in the Northeastern and Central provinces tended to be significantly higher than that in Eastern provinces, whereas that doesn¡¯t necessarily imply that the new pattern in better productivity performing regions is consistent with their comparative advantages induced by endowments of production factors. The paper suggests that by relocating the industries among eastern, central and western regions that is, upgrading industries in eastern region while transforming labor intensive industries to central and western regions, the industrial structure in the interior regions shall move towards to their comparative advantages and thus the labor intensive industries shall be sustained in China.

Key Words:Flying Geese Model; Industrial Upgrading; Total Factor Productivity

JEL Classification:C610,O380

The Logic and Method on Macroeconomic Analysis

of Chinese Economy

Liu Yingqiu

(Graduate School, Chinese Academy of Social Sciences)

Abstract:Based on the past research, by discussing the logic and method on macroeconomic analysis of Chinese economy, this paper analyze and illuminate three basic key points: 1) Grasping the current stage of Chinese economy development and corresponding Equilibrium Target Growth Rate of GDP, which is the logic start point of macroeconomic analysis and forecast; 2) Ascertaining the rational acceptable inflation rate zone inosculate corresponding with the logic start, is the key basis to make macroeconomic analysis and forecast on Chinese economy in the right way; 3) Illuminating the multiple of money supply growth corresponding with the logic start and the acceptable inflation rate zone, is the vital step to make macroeconomic analysis and forecast on Chinese economy. It is vital to understanding the three basic key points in order to make macroeconomic analysis and forecast correctly and ensure the scientific selecting and efficient implementing of the macroeconomic regulating policies.

Key Words:Equilibrium Growth Target; Acceptable Inflation Rate; Multiple of Money Supply

JEL Classification:E31, E52, E61

The Asymmetric Reaction of Monetary Policy to

Inflation and Real GDP in China

Ouyang Zhigang and Wang Shijie

(Economic & Management School of East China Jiaotong University)

Abstract:This paper, based on the situation of asymmetric reaction of monetary policy to inflation and real GDP, constructs nonlinear monetary policy reaction function using economic growth rate and inflation rate as threshold variable. The results show that the reaction of monetary policy to inflation and GDP gap, which based on situation of expectation inflation and expectation economic growth rate, is nonlinear and asymmetric, the nonlinear switch can be depicted by logist function, and the speed of switch is quick and notability. The adjustment range of economic growth rate within 8.52%¡ª8.83£¥£¬and the adjustment range of inflation rate within 2.96%¡ª3.23%. Monetary policy should be loose and more responsive to inflation when inflation rate and economic growth rate is further from the adjustment range, on the other hand, monetary policy should be tighten and more responsive to economic growth when inflation rate and economic growth rate is under the adjustment range. China should take loose monetary policies and

focus on stimulating economic growth in 2009.

Key Words:Monetary Policy; Inflation£»Economic Growth£»Adjustment Range£»Asymmetric

JEL Classification:C520£¬E420

Financial Capital Formation and Economic Growth

Wang Dingxiang^a, Li Lingli^aand Ran Guanghe^b

(a:College of Economics and Management£¬Southwest University; Chongqing Research Centre of Rural Economy and Management£»b:College of Economics and Business Management£¬Chongqing University)

Abstract:Basing on the perspective of capital division, this paper first discusses the endogenous formation of financial capital, and then studies the internal mechanism for the formation of financial capital promoting economic growth by employing the neo-classical economic growth model. The result indicates that financial capital is separated from industrial capital and commercial capital to meet the needs of social division. The appropriate formation of financial capital is necessary for the stable growth of economy. While inadequate or excessive formation will damage the stable growth. As long as the market mechanism is perfect and the system is flexible, the inappropriate financial capital will automatically adjust to the appropriate level to promote the stable growth of economy. By using the relative data of 1952¡ª2007 in China, the paper also empirically examines the relation between the formation of financial capital and economic growth. It finds that since 1952, the deepening of exogenous finance and the restraining of endogenous finance have not made the formation of exogenous financial capital the positive factor to promote economic growth. On the contrary, the endogenous formation of financial capital is beneficial to the stable growth of China economy.

Key Words:Financial Capital; Appropriate Formation; Economic Growth; Division

JEL Classification:G00£¬O40£¬P24

Empirical Study on Total Factor Productivity of China's

Listed Commercial Banks

Cai Yuezhou and Guo Meijun

(Institute of Quantitative and Technical Economics, Chinese Academy of Social Scieneces;

Department of International Business,China Construction Bank)

Abstract:Empirical study is made on the total factor productivity of listed commercial banks since 2004. Following intermediation approach, ¡°Interest Income¡±, ¡°Nonª²interest Income¡±, and ¡°Total Loans¡± are chosen to be output indices, while ¡°Interest Expenditure¡±, ¡°Operational Expenditure¡± and ¡°Total Deposits¡± input indices. Inputª²output data of 11 listed commercial banks from 2004 to 2008 are collected. Empirical study was made with the methods of Malmquist Productivity Index based on DEA. The results show that: (1) the total factor productivity for the commercial banks decrease slightly with a fairy significant decrease in technical change and a small increase in both pure efficiency change and scale change; (2) Decrease of technical change could be attributed to Macrocontrol and the adjustment of monetary and regulatory policies; (3) Shareholding reforms improve the operating efficiency of commercial banks, and the scale change of each bank is conformed to the general rule of enterprises development.

Key Words:Commercial Banks£» Total Factor Productivity£» Malmquist Productivity Index£» Data Envelopment Analysis (DEA)

JEL Classification:G21£¬O49

Studying on the Welfare Effects of VAT and Business Tax

Ping Xinqiao^a, Liang Shuanga^a, Hao Chaoyan^b, Zhang Haiyang^a and Mao Liang^a

(a:CCER, Peking University) (b:Central University of Finance and Economics)

Abstract:This paper studies different welfare effects of VAT and Business Tax on Chinese consumers. Numerical simulations suggest that, compared to the price effect of VAT, the price effect of Business Tax is larger.  Hence, on average, the measurements of welfare damage (measured by (CV/m) and (EV/m)) of the Business Tax on every consumer group in China are higher than those produced by VAT. We know from the calculation results that, if the tax burden of the Business Tax is translated into tax rate of VAT, then the tax rate of Business tax is about 18.2%, which is in turn higher than the standard tax rate of the VAT (17%) in China. The following policy strategies should be considered: completely exempt the VAT on small enterprises; and, reform the Business Tax into VAT, allowing all of the enterprises in service industry be exempted from their VAT on the inputs.

Key Words:Tax£»VAT£»Business Tax

JEL Classification:E620, O230

International Intra-product Specialization and

Developing Countries¡¯s Upgrading Value Chain

Tang Haiyan and Zhang Huiqing

(Shanghai Lixin University of Commerce£»Business School, East China Normal University)

Abstract:Based on an empirical study on forty developing countries, we find that international intra product specialization has a significant positive effect on upgrading value chain. However, such effect is mainly from the contribution of highª²level cooperation and needs to meet some preconditions such as human capital, service and institution. In the course of joining into intraª²product specialization, China has upgraded value chain obviously. Improvements on transport services and the policies focused on high level specialization play the important roles.

Key Words:International Intra-product Specialization£»Developing Countries£»Upgrading Value Chain

JEL Classification:F14£¬F16£¬F20

The Effect of Western Development Program and

Regional Economic Convergence in China

Liu Shenglong, Wang Yahua and Hu Angang

(Center for China Study, Tsinghua University)

Abstract:This article uses difference in difference method to test on the effect on the western regional economic growth and regional convergence of China¡¯s western development program. Based on a growth model, this article collects China¡¯s provincial panel data from 1987 to 2007, and uses system moment method (GMM) to do a social scientific test on the performance effect of

the western development program. According to the empirical conclusion, this article finds that the performance of the western development program accelerates economic growth rate of western region about average 1.5 percentage every year, and it makes China¡¯s regional economy from divergence to convergence. The mechanism to accelerate the economic growth of western development program is mainly the input of physical capital, especially infrastructure. The educational development, technology advance and the soft environment in western region is not improved through the western development program. This article suggests that in the process of the further western development program, the government is supposed to continue to intensify the input of physical capital and infrastructure, at the same time, the construction of soft environment such as investment on human resources, policies and regulations, humanities and so on are supposed to be intensified.

Key Words:Western Development Program; Economic Growth; Regional Convergence; Difference in Difference

JEL Classification:O180, R110, R580

Firm Heterogeneity, Sunk Costs, Spillovers and Export Participation

Yi Jingtao

(School of Business, Renmin University)

Abstract:This paper develops a dynamic discreteª²choice model of the export decision by a profit-maximizing firm and explores the role of firm heterogeneity, sunk costs and spillovers from neighboring exporters in firms export participation. It uses a panel of Zhejiang enterprises and adopts a dynamic binomial probit model to test the effect of these factors on their export decisions. Sunk costs are found to be significant and prior export experience, productivity and scale of firms are shown to increase the probability of exporting. Industry specific spillovers and location matters as well. The findings are consistent with the prediction by models of Melitz (2003) and Bernard et al (2003).

Key Words:Firm Heterogeneity; Firmª²level Export; Spillovers; Sunk Costs

JEL Classification:F10, D20, L10, C25

Access Pricing£¬Channel Competition and Regulation Failure

Shi Qi and Kong Qunxi

£¨Nanjing University of Finance & Economics£¬Nanjing 210003,China£©

Abstract:Besides asymmetric information, regulatory capture and the incomplete ability to make credible commitment for the regulator, regulating excessively can also cause regulation failure. Modern Retailing is not only a kind of network industry but also a competitive commerce platform with two sided market characters. Slotting allowance is the access pricing to the platform, through which sellers can provide the product to consumers. Competiti on among platforms would put slotting allowance into Ramsey pricing. Thereby the promulgating of the Regulation of Fair Trading between Retailer and Supplier is actually regulating excessively in the case of optimum price having been reached. Consequently, regulation failure is not set down to the unfulfilment of the objectives. Regulating itself has destroyed the spontaneous regulation mechanism of slotting allowance, and then weakens the economies of scale of the Retailing

Key Words:Regulation Failure; Two sided Market; Network Industry; Access Pricing

JEL Classification:D490,K290,L510

The Effect of Vocational Training on Nonª²farming Incomes

Wang Haigang^a, Huang Shaoan^a,b,Li Qin^c and Luo Fengjin^d

(a:School of Economics, Central University of Finance and Economics;

b:Center for Economic Research, Shandong University;c:Guangdong Center for Rural Policy Research, South China Agricultural University;d:Survey Office in Guangdong, National Bureau of Statistics of China)

Abstract£ºApplying heterogenous treatment effect model, this paper estimates the treatment effects of vocational training in rural Guangdong province. We find that (1) the unobservables play an important role for the villagers to decide whether or not participate the training pro

grams, (2) In terms of unobservables, those most likely to participate benefit the least from the programs and those not likely to participate benefit the most, (3) the treatment effect for the treated is lower that the average treatment effect and the latter is lower than the treatment effect for untreated. The empirical result suggests the training programs should help the villagers with observed and unobserved characteristics that make them the least likely to increase their non-farming incomes without training.

Key Words£ºVocational Training; Heterogeneity; Selection Bias; Sorting Gain

JEL Classification£ºH43; J31; J41

Entrusted Agency: Manager Behavior, Accounting Information Assurance and Investors

Long Xiaohai,Tian Cunzhi and Duan Wanchun

(School of Management and Economics,Kunming University of Science and Technology)

Abstract£ºThe purpose of this study is to construct a dynamic game model concerning with investors, managers and auditor by introducing assurance charge, reputation capital, market competition rewards, additional assurance compensation, and market supervision for discussing the process of interests motivation forming when the manager reports and the auditor verifies accounting information. Extant research finds that the assurance market, which is created by investors¡¯ demand for assurance of accounting information, has its own mechanism formaintenance of auditor independence. This study shows that if accounting information and nonaudit service are not overused, the assurance market can maintain the independence of auditor; otherwise, additional assurance compensation for assurance to auditor is needed to compensate for failure of the assurance market. It plays a role in preventing moral risk of the auditor by various factors as assurance charge, reputation rewards, market competition rewards, additional assurance compensation and market supervision with mutual substitution effect. Therefore, it is more effective by establishing an operating mechanism in assurance market than simply emphasizing external supervision.

Key Words£ºEntrusted agency; Accounting Information Assurance; Auditor Independence

JEL Classification£ºG340, M410, M420