CONTENTS

Capitalization Expansion and Technological Progress of Catchª²up Economy

ª«  ¡­¡­¡­Research Group on China's Economic Growth and Macroeconomic Stability      (4)

An Accurate Understanding of China¡¯s Economic Statistics ¡­¡­¡­¡­¡­Xu Xianchun         (21)

The Dynamic Impact of RMB Exchange Rate Movements on China¡¯s Trade Balance

ª«  ¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Liu Yaocheng, Zhou Jizhong and Xu Xiaoping              (32)

Evaluation on Elastic Space of RMB Exchange Rate Volatility

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Huang Zhigang and Chen Xiaojie           (41)

Innovation Activities in Chinese Manufacturing Firms:The Roles of Firm Ownership

and CEO Incentives¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­ Li Chuntao and Song Minª«     (55)

Is There Skill Biased Technological Change? Evidence from China

ª«  ¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Song Donglin, Wang Linhui and Dong Zhiqingª«      (68)

Empirical Study on Heterogeneous Dynamic Path of Local Expenditure under

Inter-temporal Budget Constraints¡­¡­¡­¡­ Zhang Zhengyu and Zhu Pingfangª«       (82)

Environmental Efficiency and Environmental Total Factor Productivity Growth

in China¡¯s Regional Economies¡­¡­¡­Wang Bing£¬Wu Yanrui and Yan Pengfeiª«    (95)

Convergence of Endogenous Cross-Country Income Differences¡­¡­ Li Shang-aoª«    (110)

Poverty Dynamics in Rural China¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Luo Chuliangª«          (123)

A Query to the Paper ¡°CPI vs. PPI: Which Drives Which¡± ¡­¡­¡­¡­ Xu Weikangª«     (139)

CPI vs. PPI: Which Drives Which? A Reply¡­¡­¡­He Liping, Fan Gang and Hu Jianiª«   (149)

A Summary for the Forum of Marxist Economics and Its Renewal

ª«  ¡­¡­¡­¡­¡­¡­¡­¡­¡­ Lin Yong, Zhao Xuezeng, Liu Zhiming and Jia Lihongª«       (155)

A Book Review¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Hu Jiayongª«           (159)

Capitalization Expansion and Technological

Progress of Catch-up Economy

Research Group on China's Economic Growth and Macroeconomic Stability

(CASS)

Abstract: From the perspective of economic resources capitalization, this paper investigates capital accumulation, technological choice and their relationship with economic growth in China. Based on the comprehensive across-province TFP analysis from 1978 to 2008, we propose a new rationale about China's economic growth and technological progress. As a developing country in a transition from a planned economy to a market economy, China has been experiencing a rapid capitalization of the stock of economic resources in various stages of economy growth, while the role of market actors enhances and assets pricing principles develop. During 1980¡ª90s such a type of capitalization was labeled as capital formation in the real economy. Since 2000 it has been undergoing with the Chinese currency appreciation, integration of the Chinese domestic capital market into international capital market, and re-pricing of production factors. Although with a positive and incentive effect on economy catch-up and efficiency improvement, the economic resources capitalization might have constraints on endogenous technological innovation. As a result, the growth rate of TFP fluctuated at a low level so that technological progress contributed little to China¡¯s economic growth. The capitalization has been deviated and economic resources rushed into capital sectors excessively. This resulted in a rapid rising asset prices, industrial overcapacity and limited innovation in the real economy. In order to maintain sustainable growth of China¡¯s economy, adjustments towards current policy and institution has to be carried out to motivate endogenous technological innovation and change the mode of economic development.

Key Words: Capitalization; Investment; Technological Progress; Economic Growth

JEL Classification: O110,O140,O380

An Accurate Understanding of China¡¯s Economic Statistics

Xu Xianchun

(National Bureau of Statistics of China)

Abstract:In response to some scholars¡¯ doubts on estimates of China¡¯s expenditure-based GDP, this paper first elaborates the differences between some common economic statistical indicators and their corresponding components of expenditure-based GDP from the aspects of connotation and data performance in 2009, including the differences between total retail sales of consumer goods and household consumption, fiscal expenditures and government consumption, total fixed asset investment and gross fixed capital formation, inventories and change in inventory, and balances on foreign trade by Customs statistics and the net exports of goods and services. Second, in response to some scholars¡¯ criticism on methodology of China¡¯s economic statistics, it further elaborates the conceptual consistency and the match of data performance between productionª²based GDP growth rates and expenditure-based GDP growth rates, how infrastructure investments contributing to GDP growth, the basic statistical principle for total retail sales of consumer goods, and so on..

Key Words:Production-based GDP; Expenditure-based GDP; Economic Statistics; Economic Growth Rates

JEL Classification:C82£¬C83£¬E01

The Dynamic Impact of RMB Exchange Rate

Movements on China¡¯s Trade Balance

Liu Yaocheng, Zhou Jizhong and Xu Xiaoping

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

Abstract:In view of the shortcomings of existing studies on the impact of RMB exchange rate movements on China¡¯s trade balance, this paper follows the method of Blanchard and Quah(1989) under which the long-run effect of structural shocks were controlled and analyzes the dynamic effect on China¡¯s trade of balance of changes of RMB real effective exchange rate. Two main conclusions thus emerge. Firstly, the elasticity approach to trade balance is in general applicable to China, with a clear but modified J-curve effect. Secondly, during the sample period visited, China¡¯s trade balance tends to worsen with appreciation of RMB, and the impact of RMB movements on China¡¯s trade balance tends to be strengthened as time goes on..

Key Words:RMB Exchange Rate; Trade Balance; Elasticity Approach; Shocks Decomposition

JEL Classification:F310£¬C320

Evaluation on Elastic Space of RMB Exchange Rate Volatility

Huang Zhigang and Chen Xiaojie

(Management School of Fuzhou University)

Abstract: Theoretically, under the restricted condition of keeping the independency of policies, when given certain capital flow, the corresponding elasticity of exchange rate volatility which makes the intermediate exchange rate regime sustainable can be found. Once the elastic space of exchange rate volatility is decided scientifically, the intermediate exchange rate regime can have the advantage of both fixed exchange rate regime and floating exchange rate regime. Up to now, there¡¯s scarcely any research achievement on quantitatively analyzing or measuring elastic space of exchange rate volatility under the theoretical framework of Paul Krugman¡¯s ¡°the Impossible Trinity¡±. Our empirical study with the elasticity of RMB exchange rate volatility as the research subject shows that: 1. broadening the elastic space of RMB exchange rate volatility from 0.3% to 0.5% is rational and necessary. 2. Current daily band limit (0.5%) is approximately the elastic space of RMB exchange rate volatility at the present stage, that is, current daily band limit is both rational and adequate at the present stage on the whole.

Key Words:Elastic Space of Exchange Rate Volatility£»Evaluation Technique£»Impulse Response Function£»Variance Decomposition

JEL Classification:F31, O24

Innovation Activities in Chinese Manufacturing Firms:

The Roles of Firm Ownership and CEO Incentives

Li Chuntao and Song Min

(Central University of Finance and Economics; University of Hongkong)

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Abstract:We use a World Bank survey of 1483 manufacturing firms from 18 Chinese cities over the period 2000 to 2002 to empirically examine the roles of CEO incentives on firms¡¯innovation activities under different ownership structure, for both innovative input and output. Innovation measures include firm R&D decision, R&D intensity and a number of innovation output measures. After controlling for other co-factors, we find the following main results: (1) SOEs are more innovative than private firms, in terms of both innovation input and output; (2) CEO incentive schemes increase firm innovation; (3) The effect of the incentives on innovation is deteriorated for SOE firms. The main results prove robust after controlling for endogenity with instrument variables. Some important policy implications are discussed.

Key Words:Ownership Structure; R&D; Incentive

JEL Classification:O30, P20, H00

Is There Skill Biased Technological Change? Evidence from China

Song Donglin^a, Wang Linhui^b and Dong Zhiqing^b.cªª

(a: Changchun Taxation College; b: School of Economics of Northeast Normal University;

c: Business School of Jilin University)

Abstract£ºThe paper makes an empirical study on the presence of the skill biased technological change and the function difference of the different kinds of technological change with China¡¯s data from 1978¡ª2007. It points out that China¡¯s technology can conduct skill demand growth, and make the structure of labor market variable and the skill premium, namely there is skill biased technological change in China. To subdivide technology to neutral, non-neutral, and capital specific technology, it shows that all kinds of technology are to be skill-biased, and the capital specific function is the most, all these mean that the technological change contained in the equipment grows fast to make the skill biased technological change develop, and the technological change takes the characters of both the capital specific and skill biased.

Key Words£º Skill Biased Technological Change; Skill Demand; Skill Premium

JEL Classification£ºC61, J82, O33

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Empirical Study on Heterogeneous Dynamic Path of Local Expenditure

under Inter-temporal Budget Constraints

Zhang Zhengyu and Zhu Pingfang

(Center for Econometric Study, Shanghai Academy of Social Sciences)

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Abstract£ºWe show in this paper that the dynamic path of local public expenditure follows a spatial dynamic panel data model by accounting for both cross sectional strategic interactions and inter-temporal budget constraints. To estimate the economic relations that display both inhomogeneous spillovers and asymmetric temporal dynamics, an instrumental variable quantile regression estimator is proposed. We then apply the suggested model and method to examining the strategic engagement of environmental policymaking among local governments using the panel data consisting of 276 municipalities in China from 2002 to 2006.The empirical findings include that the contemporaneous spatial effect increases as spending goes up and is significantly positively registered over medium-high quantile points while the inter-temporal spatial effect is estimated to be negative through all the quantiles. Local environmental spending grows by fiscal accumulation on medium-low quantiles up to some higher threshold level where the spending starts to be fueled by strategic competition with neighboring municipalities. The environmental input is inclined to be crowded out by developing regional economy at medium-low quantiles and is supported at higher quantiles.

Key Words£ºStrategic Interaction among Local Government; Inter-temporal Constraint; Spatial Dynamic Panel Data Models; Quantile Regression

JEL Classification£ºC13, C33, H70

Environmental Efficiency and Environmental Total Factor

Productivity Growth in China¡¯s Regional Economies

Wang Bing£¬Wu Yanrui and Yan Pengfei

(Economics School, Jinan University£»Business School£¬University of Western Australia£» Economics and Management School, Wuhan University)

Abstract£ºThis paper applies SBM directional distance function and Luenberger productivity indicator to measure environmental efficiency, Environmental TFP growth and its components in China over the period 1998 to 2007 while accounting for factors about resource environment. We also empirically examine the causes of efficiency and productivity changes. The major conclusions are as follows: the overuse of energy and the excess of SO₂ and COD emission are the main source of environmental inefficiency, and the provinces in the eastern regions experience higher environmental efficiency. The environmental TFP is higher than market TFP on average. Centre regions and western regions are frail in market TFP growth as well as in environment TFP growth. The inclusion of energy saving and emission reduction did change the ranks TFP of Chinese provinces. GRP per capita, FDI, structure factor, the capacity for environmental management of government and firms, environmental protection awareness of people have a varying degree effect on the environment efficiency and environment TFP growth.

Key Words£º Environmental Efficiency£»Environmental Total Factor Productivity£»Directional Distance Function£»Luenberger Productivity Indicator

JEL Classification£ºC61£¬D24£¬O47

Convergence of Endogenous Cross-Country Income Differences

Li Shang-ao

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

Abstract£ºFor many problems in economic growth theories, cross-country income differences are of central importance. Latest researches consider biased technological change as the main reason of cross-country income differences. Existing literature has studied the relationship between biased technology stock and relative factor supply, while this paper expends this issue to the study of the relationship between biased technological progress rate and relative factor supply. We study the difference between the two major implications of biased technological change: biased technology and biased technological progress, which cause absolute convergence and conditional convergence. On the basis of the empirical analysis we divide cross-country income differences into 4 cases, and analyze the reasons of absolute convergence and conditional convergence and the reasons of wage fluctuations. Finally we conclude that sustainable baised technological progress and efficient human capital investment are the key conditions by which LDCs can catch up developed countries.

Key Words£ºCross-country Wage Differences; Cross-country Income Differences; Biased Technological Change

JEL Classification£ºE25, O33, F41

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Poverty Dynamics in Rural China

Luo Chuliang

(School of Economics and Business Administration,

Research Center of Income Distribution and Poverty, Beijing Normal University)

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Abstract£ºBased on the longitudinal surveys in 2007 and 2008 conducted in rural China, the paper discusses the poverty and poverty dynamics. According to the poverty incidence occurred in these two years, the share of poverty in both years is not so high. Of course, the structure of poverty type also depends on the poverty line.Higher poverty line might result in higher share of poverty in both years. The dynamics of income composition indicates, the wage income, including earnings from migration, contributed obviously the poverty reduction, while fluctuation in household business income is an important contributor to poverty. After endogenization on household migration decision, the findings show migration is significantly reduced poverty incidence. The poverty incidence for the household with higher probability of migration is lower. The poverty reduction effects of migration also depend on the poverty line. The poverty reduction effect is higher for the lower poverty line. Additionally, health also significantly affects poverty and poverty dynamics. The unhealthy member will result in higher poverty incidence.

Key Words£ºMigration; Poverty in Rural; Poverty Dynamics

JEL Classification£ºI320,R200,O150

A Query to the Paper ¡°CPI vs. PPI: Which Drives Which¡±

Xu Weikang

(Mathematical Economic Centre, Capital University of Economics and Business)

Abstract: The author finds that the empirical investigation to the relation of CPI and PPI in He¡¯s paper has some problems, such as the estimate of weight coefficient, the examination to the cointegration and Granger-causality. The empirical outcome of He¡¯s paper is that: CPI is the Granger-causality of PPI. He¡¯s paper gives the conclusion from this result: the demand-side factors have played a more important role than supply-side factors in CPI inflation in contemporary Chinese economy. While the author derives the different result by a VEC model with the same data: the CPI is the Granger-causality of PPI in the short and long-run, and vice verse. Therefore, the point of He¡¯s paper is controversial.

Key Words: Consumer Price Index; Producer Price Index; Price Transmission; Query

JEL Classification: E31, E37, C22

CPI vs. PPI: Which Drives Which? A Reply

He Liping, Fan Gang and Hu Jiani

(Beijing Normal University; China Reform Foundation)

Abstract: In response to questions pinpointing to our earlier paper, ¡°CPI vs. PPI: Which Drives Which¡±, we have improved our earlier econometric examinations, using a revised dataset. The finding is basically the same as that in earlier one: for the period under study (January 2001¡ªJune 2008), the change in CPI is leading the change in PPI. As a weighted average of its components, the series of CPI and that of its components should be coª²integrated in principle. As changes in CPI reflects factors that are more on the consumer demand side, and that in PPI also braces for intermediate demand and supply-side factors, analysis on the relations between the two may be extended to the issue of aggregate demand and aggregate supply.

Key Words:CPI; PPI

JEL Classification:E31, E37, C22