China Economic Quarterly
Vol.15 No.2
January, 2016
CONTENTS
Papers
………………………………………………Lei Li Bo Hu Yanyan Zheng / 429
The Economic Cycles from Qianlong to Xuantong in Qing Dynasty: A Spectrum Analysis Based on Rice Prices in Kaifeng and Taiyuan
……………………………………………Chang Luo Qihang Li Yi Fang / 453
Stock Return and Inflation: A Shorthorizon Perspective in the Chinese Hyperinflation
………………………………………………………………………Liuyan Zhao / 479
Expected Inflation and Firms’ Inventory Adjustment
……………………………………Pingui Rao Heng Yue Guohua Jiang / 499
Financial Crisis, Unconventional Monetary Policy and Central Bank Balance Sheet: An Explanation to the Unconventional Monetary Policy Paradox of the Fed and ECB
……………………………………Jingjia Zhang Lanbiao Liu Bo Wang / 527
Does Higher Income Inequality Lead to Higher Housing Price?
……………………………………………………………Shu Xu Xun Chen / 549
A Good House Gets You a Good Wife: Rural Housing Investment and Marriage Matching
………………………………………………………Li Fang Chuanhao Tian / 571
Guanxi, Formal and Informal Credit
……………………Yongyuan Sun Zaichao Du Lin Zhang Jincai He / 597
The Impact of Work Unit’s Ownership on Wage Differentials between the Labor of Urban and Rural Household Registration
…………………………………………………Jinxiong Chang Haitao Zhao / 627
Does Cultural Segmentation Caused by Administrative Division Harm RegionalEconomic Development in China?
……………………………………………Xiang Gao Cheryl Xiaoning Long / 647
Transfer Payment and Interregional Disparities of Economic Development
…………………………………………………………Husen An Haobo Wu / 675
Resource Endowment and Public Goods Supply under the Game of Local Interests Subject
…………………………………………………Jianbao Chen Ningning Qiao / 693
Information Quality, Market Evaluation and Incentive Effectiveness:Evidence from the New Fortune’s Analysts Ranking
…………………………………Weili Wu Zheng Zhang Kunyuan Qiao / 723
Financing Sources、Cash Holdings and R&D Smoothing:Evidence from the Biomedical Manufacturing
………………Shue Wu Weizhou Zhong Jianbo Wei Zhenlei Huang / 745
Market Efficiency and Asset Growth Anomaly: An Empirical Investigation between Optimal Investment Effect Hypothesis and Mispricing Hypothesis
……………………………………………………………………………Qi Lin / 767
Hukou System Reform,Individuals Flows and Regional Disparities:Based on the Intertemporal Model of Heterogeneous Individuals Flows
…………………………………………………………Jiangli Zhu Zilian Li / 797
Does China’s New Rural Pension Scheme Improve the Life Quality of the Rural Elderly?
……………………………………Ye Zhang Lingguo Cheng Zhibiao Liu / 817
Is Obesity Contagious?
LEI LI
(Nankai University)
BO HU
(London School of Economics and Political Science)
YANYAN ZHENG
(Tianjin Foreign Studies University)
Abstract Using China Health and Nutrition Survey (CHNS) data, we empirically analyze the contagiosity of obesity. With individual’s and community’s characteristics controlled, the empirical results show that the average BMI of other people in the same community has a significantly positive effect on individual’s BMI, which indicates that obesity is contagious. With endogeneity of core explanatory variables considered using 2SLS, empirical results are still robust. We then use quartile regression and find that the BMI of fat people is more susceptible to the BMI of others. Finally, we analyze the contagious mechanism of obesity through social networks.
Key Words BMI, Obesity, Contagious
JEL Classification I10, Z13, D85
The Economic Cycles from Qianlong to Xuantong in Qing Dynasty: A Spectrum Analysis Based on Rice Prices in Kaifeng and Taiyuan
CHANG LUO
(Shanxi University)
QIHANG LI
(Shandong University of Finance and Economics)
YI FANG
(Central University of Finance and Economics)
Abstract Using wheat prices of the prefecture of Kaifeng and Taiyuan, and with the method of spectrum analysis, this paper managed to work out the economic cycle from Qianlong to Xuantong in Qing dynasty. We find that from 1736 to 1911 China has 3 long economic cycles, each of which lasted for 60 years. Each long cycle can be divided into several middle-length cycles. Major military spending stimulated the rising rice prices. We also find that extreme climate change and silver supply affected the change of the economic cycle.
Key Words the Qing dynasty, economic cycle, spectrum analysis
JEL Classification E32, N15, O11
Stock Return and Inflation: A Short-horizon Perspective in the Chinese Hyperinflation
LIUYAN ZHAO
(Peking University)
Abstract We examine the short-term relationship between stock returns and inflation during the Chinese hyperinflation after World War II. Stocks appear to be a complete hedge against expected inflation, and even a partial hedge against unexpected inflation. In contrast to the stock return-inflation puzzle, we find that Fisher hypothesis is applicable to common stocks even in short-horizon during the episode of Chinese hyperinflation.
Key Words Fisher hypothesis, the stock returninflation puzzle, hyperinflation
JEL Classification E42, F15, N25
Expected Inflation and Firms’ Inventory Adjustment
PINGUI RAO
(Jinan University)
HENG YUE GUOHUA JIANG
(Peking University)
Abstract In this paper we investigate how expected inflation influences firms’ inventory investment. Using the Price Expectation Index in the depositor survey reported by People’s Bank of China, and with random walk model and simple Phillips curve model to measure expected inflation, we find that expected inflation influences firms’ inventory investment. In general, firms will increase their investment in inventory when expected inflation is high. We also find that firms that adjust their inventory according to expected inflation perform better than those do not. Further investigation finds that the adjustment for expected inflation leads to better performance only when the expectation of inflation is accurate. Our study contributes to the literature by investigating the effect of inflation at firm level and sheds light on the relationship between macro policy and micro activities.
Key Words expected inflation, adjustment of inventory, performance
JEL Classification D21, D24, G31
Financial Crisis, Unconventional Monetary Policy and Central Bank Balance Sheet: An Explanation to the Unconventional Monetary Policy Paradox of the Fed and ECB
JINGJIA ZHANG LANBIAO LIU BO WANG
(Nankai University)
Abstract In this paper we directly introduced unconventional monetary policy indicators into factor-augmented vector auto-regression (FVAR) models to study the influences of unconventional monetary policies used by the Fed and ECB on interest rates, price level and spillover effects on emerging countries like China. We also built unconventional monetary policy indicators of the Fed and ECB using data from central bank balance sheet for the first time, and discussed the existence and similarity of “Interest Rate Constraint Paradox” and “Price Paradox” of Fed and ECB's unconventional monetary policies under a unified empirical framework.
Key Words unconventional monetary policy, interest rate constraint paradox, price paradox
JEL Classification E52, E58, E61
Does Higher Income Inequality Lead to Higher Housing Price?
SHU XU
XUN CHEN
(Southwestern University of Finance and Economics)
Abstract This paper demonstrates that increasing inequality leads to higher housing price. Building on a sequential decision model, we elaborate the economic mechanism through which inequality promotes housing price. We then empirically test the consistency of the model’s prediction. The results indicate that one standard deviation increase in inequality will raise the relative housing price by 0.07—0.09 standard deviation, and absolute housing price by 34—47 RM. Furthermore, the impact is stronger in provinces with lower level of housing market competition. Our study highlights that the reform of income distribution system will not only facilitates social equity, but also restrain the increase of housing price.
Key Words income inequality, housing price, market competition
JEL Classification D63, R31, J01
A Good House Gets You a Good Wife: Rural Housing Investment and Marriage Matching
LI FANG
(University of Maryland)
CHUANHAO TIAN
(Zhejiang University)
Abstract In this paper we try to explain the “The Rural Housebuilding Craze” by investigating the role of housing investment in marriage matching. We apply the Spences signal model into the marriage market and refer it to housing investment as a signal to reveal males unobservable quality. Whether the signaling will result in a pooling equilibrium or a separating equilibrium depends on the reservation utility of getting married, the interest rate and the distribution of male and females qualities. When a separating equilibrium forms, males and their families make different housing investment according to their unobservable qualities, and females can tell males’ otherwise hidden quality through the appearance of their housing. Successful assortative matching can thereby be made. Using survey data from three provinces in China, we find a relationship between the timing of marriage and timing of housing investment, and a positive relationship between husband’s pre-marital housing investment and wife’s height and education.
Key Words housing investment, marriage matching, signaling
JEL Classification J13, J16, Q15
Guanxi, Formal and Informal Credit
YONGYUAN SUN
ZAICHAODU*
LINZHANG
(Southwestern University of Finance and Economics)
JINCAIHE
(Chongqing Jiaotong University)
Abstract Using 2011 China Household Finance Survey (CHFS) data, we study the impact of“Guanxi” on obtaining loans. We find that Guanxi has a positive effect on formal loans, but has insignificant effect on informal loans. Specifically, as Guanxi index increases by 1%, the probability of getting formal loans, the number of formal loans and the volume of formal loans increase by 0.18%, 0.0024 and 3.2% respectively. The results of sub-indexes show that a family’s authority, spending on establishing and enhancing Guanxi can raise the ability of getting formal loans, while blood-based Guanxi can increase the ability of getting informal loans. Moreover, the marketization doesn’t change the effect of Guanxi on obtaining loans.
Key Words Guanxi, formal credit, informal credit
JEL Classification D14, O17, Z13
The Impact of Work Unit’s Ownership on Wage Differentials between the Labor of Urban and Rural Household Registration
JINXIONG CHANG
(Shanghai University of Finance and Economics)
HAITAO ZHAO
(Shanghai Academy of Development & Reform)
Abstract Based on CHNS data, we analyze the sources of wage discrimination in China’s urban labor market. The results indicate that (1) the gap of returns to education between labor of urban and rural household registration is biggest in state-owned enterprises; (2) the unexplained part in wage differentials between labor of urban and rural household registration is highest in state-owned enterprises and is lowest in private enterprises; (3) state-owned enterprises pay significant higher wages than non-state-owned enterprise. Besides, labor of urban household registration get a significantly higher premium than labor of rural, and these characteristics’ trend is aggravated over time.
Key Words ownership nature, wage discrimination, returns to education
JEL Classification J24, J31, J49
Does Cultural Segmentation Caused by Administrative Division Harm Regional Economic Development in China?
XIANG GAO
(Guangdong University of Foreign Studies)
CHERYL XIAONING LONG
(Xiamen University)
Abstract Current province-level administrative division in China breaks the distribution of local culture, and many cities are separated from their local culture region to locate in other provinces. These cities encounter potential cultural conflicts with the mainstream culture of the provinces they belong to, and also face various local protectionism barriers with neighboring cities in the province that share the same border and local culture with them. As a result, transaction costs could be higher for them whichever side they trade with, leading to potential harm to their economic development. Using dialect as a proxy for local culture, we find that intra-provincial cultural differences caused by this kind of cultural segmentation can significantly lower economic growth of the separated cities. This negative effect is aggravated by greater local protectionism in neighbor provinces but alleviated by a longer history of the current administrative division. These findings support the hypothesis that cultural segmentation caused by administrative division and local protectionism work together to bring about substantial economic loss.
Key Words cultural segmentation, regional economic growth, dialect
JEL Classification O43, R58, H70
Transfer Payment and Inter-regional Disparities of Economic Development
HUSEN AN
HAOBO WU
(Nankai University)
Abstract Four mechanisms are theoretically and empirically analyzed here: capital allocation effect, market-access effect, market crowding effect and income taxation effect,through which transfer payment policy affects the inter-regional disparities of economic development. When the central government provides enterprises in the poor region with subsidies proportional to their operating profits by the nation-wide income taxation, the gap of inter-regional industry shares would decrease, but the gap of inter-regional market scales which is an important index of regional economic development would increase. However, that kind of subsidy may contribute to a desired goal aiming to reduce the inter-regional inequality of individual welfare, although the total welfare would decrease. We also find that those improvements on terms of inter-regional trade not only reduce the degree of total welfare loss, but also relax the requirement on the optimal subsidy rate under which inter-regional equality on individual welfare should realize.
Key Words capital allocation effect, marketaccess effect, optimal subsidy rate
JEL Classification H21, H30, R13
Resource Endowment and Public Goods Supply under the Game of Local Interests Subject
JIANBAO CHEN
(Fujian Normal University)
NINGNING QIAO
(Taiyuan Central Subbranch of the Peoples Bank of China )
Abstract In this paper we first take the resource endowment as key point to develop a two-phase game model to describe resource income pursuit of local government and private interest subjects and theoretically deduce the obvious heterogeneity existence between resource endowment and government’s public goods supply. Then we employ the latest semi-parametric spatial lag regression model to study the related data of prefecture-level cities in China from 2003 to 2008 empirically. We find that the influence of resource endowment on different types of public goods supply has typical non-linear characteristics. Meanwhile the overall impact of resource endowment on the local public goods supply has a positive correlation with the economic development level in some extent.
Key Words resource endowment, public goods supply, semiparametric spatial lag model
JEL Classification C51, H41, O41
Information Quality, Market Evaluation and Incentive Effectiveness:Evidence from the New Fortune’s Analysts Ranking
WEILI WU
(Central University of Finance and Economics)
ZHENG ZHANG
KUNYUAN QIAO
(Peking University)
Abstract In the sell-side analyst industry, analyst ranking is an important external incentive mechanism. We study the relationship between the ranking results and the quality of information released by sell-side analyst. We find that the quality of information released by star analysts is not better than that of non-star analysts before ranking and the probability of becoming star analysts is positively correlated to their popularity and the market status of the brokerage house of analysts, instead of the quality of the information released by analysts. We conclude that analyst ranking is not as effective as an external incentive currently, which is worth our attention and reflection.
Key words star analyst, incentive effectiveness, information quality of analyst
JEL Classification G10, G11, G20
Financing Sources, Cash Holdings and R&D Smoothing:Evidence from the Biomedical Manufacturing
SHUE WU
(Peking University,Peking University Founder Group)
WEIZHOU ZHONG
(Xi’an Jiaotong University, Huaqiao University)
JIANBO WEI
(Renmin University of China)
ZHENLEI HUANG
(Z-Park Equity Trading Service Co.Ltd.)
Abstract Based on the data of listed biomedicine firms from 1998 to 2012, this paper makes an analysis on the mechanisms of cash holdings affecting R&D smoothing with system GMM. We find that firms’ R&D investment can always be maintained at a relatively stable level, and the main reason is that firms can use cash holdings to smooth R&D investment. Meanwhile, cash flow will reversely moderate the relationship between cash holdings and R&D smoothing for firms with financing constraints. Relational debt financing will reversely moderate the relationship between cash holdings and R&D smoothing, while transactional debt financing will positively moderate the relationship between cash holdings and R&D smoothing. Stock financing will reversely moderate the relationship between cash holdings and R&D smoothing, and the coefficient is the largest one among all the coefficients of moderators. Financial crisis leads to the improvement of R&D investment of Chinese firms, since cash holdings have hedged the financial crisis, which ensures R&D smoothing can be sustained.
Key Words cash holding, R&D smoothing, financing constraint
JEL Classification C12, G31, D21
Market Efficiency and Asset Growth Anomaly: An Empirical Investigation between Optimal Investment Effect Hypothesis and Mispricing Hypothesis
QI LIN
(Zhejiang University of Finance and Economics)
Abstract In this paper, we use listed companies’ data over the period 2000—2012 to empirically test the asset growth anomaly in China, and evaluate the predictions of both the optimal investment effect hypothesis we built based on the Q-theory of investment and the mispricing hypothesis. The results show that the asset growth effect does exist in China, and it can be explained by the optimal investment effect hypothesis based on rational investment decision rather than mispricing hypothesis with limits-to-arbitrage, over-investment, and market timing.
Key Words asset growth anomaly, optimal investment effect hypothesis, mispricing hypothesis
JEL Classification G12, G14, G32
Hukou System Reform,Individuals Flows and Regional Disparities:Based on the Intertemporal Model of Heterogeneous Individuals Flows
JIANGLI ZHU
(Nanjing University)
ZILIAN LI
(Jiangsu Normal University)
Abstract Hukou system reform will decrease the rate between rural labors and entrepreneurs and lower the immigration costs of rural labors, and eventually change the regional patterns of economy. It will go through three stages: in the first stage Hukou system reform will result in large market region and core-periphery pattern when economy is dispersed; then Hukou system reform will increase the agglomeration forces of large market region when economy is in the core-periphery pattern, and the agglomeration size will be expanded; in the third stage Hukou system reform will reduce the agglomeration force and strengthen the disperse force when core-periphery pattern matures. Meanwhile, improving trade liberalization can help relieve over-agglomeration.
Key Words Hukou system reform, regional disparities, mobility
JEL Classification R12, F15, F12
Does China’s New Rural Pension Scheme Improve the Life Quality of the Rural Elderly?
YE ZHANG
ZHIBIAO LIU
(Nanjing University)
LINGGUO CHENG
(Shanghai University of Finance and Economics)
Abstract In this paper we investigate the effect of China’s New Rural Pension Scheme (NRPS) on the life quality of the rural elderly. Using panel data from 2008 and 2011 waves of the Chinese Longitudinal Healthy Longevity Survey (CLHLS), we adopt an empirical strategy that combines propensity score matching with difference-in-differences approach to correct the potential selection bias. It shows that the NRPS improves enrollees’ life quality, however moderately, in terms of health outcomes, cares and comforts received from the adult children, resilience to face difficulties in life, nutrition taken, and relative position in the family. However, there is no evidence that NRPS reduces the inequality in life quality among the rural elderly across different income subgroups.
Key Words New Rural Pension Scheme, life quality, rural elderly
JEL Classification H43, H55, I38