China Economic Quarterly
Vol.14 No.2
January, 2015
CONTENTS
Local Fiscal Burden and Public Good Provision: Impact of Rural Tax-for-Fee Reform
………………………………………………………………………Li-an Zhou Yi Chen 417
Fiscal Decentralization and Economic Growth in China: A Meta-Regression Analysis
………………………………………………………………………Zhenfa Xie Wei Zhang 435
Bounded Rationality, Heterogeneous Expectation and Endogenous Evolution Mechanism of Housing Price
……………………………………………Zhongfei Li Jun Zheng Yuyuan Huang 453
“FH puzzle”’s Applications for Inter-province and Proofs of the Theory
………………………………………………………………………………Dingxing Wang 483
Formal Financial Institutions Development, Multiplier Effect of Internal Fund and Assets Growth of Chinese Firms
……………………Xiaosheng Ju Dic Lo Chaofeng Huang Ruilong Guan 507
Profit Efficiencies and Influences of the Chinese State-owned Commercial Banks: Based on Their Ownership Structure Changes
…………………………………………Wen Yang Bangzhu Sun Xiangbin Cheng 535
China’s Environmental Pollution and Economic Growth
………………………………………………………………………Min Wang Ying Huang 557
The Expansion of Graduate Education, Returns to Higher Education and Wage Inequality: Empirical Study of Taiwan
………………………………………………………………………Wenyi Chen Lily Jiang 579
Dismantling Teaching Points: Integrate Education Resources or Reduce Investment in Education?Based on the Analysis of 1996—2009 Provincial Panel Data………………………………………………………………Dong Ding Fengtian Zheng 603
Asymmetric Responses to Cost Shocks and Sticky Prices: Evidence from China’s Manufacturing Firms
………………………………………………………………………………………Yang Lu 623
Disparity between Urban and Rural Areas in China: A Business Cycle Perspective
……………………Weijin Zhang Chen-ray Fang Ching-hsiang Huang 651
Accumulation of International Reserves,Goods and Asset Price Inflation, and the Independence of Monetary Policy
………………………………………………………………………………………Junfeng Qiu 677
Research on the Effect of China’s Foreign Trade on Productivity, Earnings and Environment: Based on the Threshold Panel Model
…………………………………………Yanfang Lyu Dong Wang Shuwen Chen 703
Platform Competition between Cable TV Stations: From Free-to-air to PayTV
…………………………………………………………………Yuanzhu Lu Xu Zhang 731
Employment “Polarization” in China: An Empirical Research
…………………………………………………………………Shibin Lyu Shiwei Zhang 757
Railways and Domestic Market Development in the Late Qing Dynasty
……………………………………………………………………Se Yan Meng Xu 779
A Stationarity Reconsideration of China’s Macroeconomic Time Series: Endogenous Breaks and Smooth Transitions
………………………………………………………………………………………Qing Han 801
Local Fiscal Burden and Public Good Provision: Impact of Rural Tax-for-Fee Reform
LI-AN ZHOU*
(Peking University)
YI CHEN
(University of California,Los Angeles)
Abstract Using the 1997—2005 county-level panel data, we estimate the effects of the rural tax reform on the county fiscal burden and the supply of local public services. We use Difference-in-Differences method to identify the causality. The reform cancelled the previously levied informal fees. Because part of the fees is transformed to agricultural taxes, this increases the tax income on balance sheet. However, the county government’s burden is unambiguously increased because fee is cancelled. We further confirm the reform results in a drop in the supply of public service in the long run.
JEL Classification H30, H41, H71
Fiscal Decentralization and Economic Growth in China: A Meta-Regression Analysis
ZHENFA XIE* WEI ZHANG
(Xiamen University)
Abstract In order to scrutinize whether the results of the empirical literatures on “fiscal decentralization and economic growth in China” are affected by the characteristics of specific studies, this paper has selected some high-quality empirical studies for meta-analysis. The results show that some empirical results were correlated with some characteristics of different studies, especially that the result of “fiscal decentralization helping to promote economic growth in China” was significantly influenced by “region, K/L, revolve, budgetary”. By means of the funnel plot asymmetry analysis, it is discovered that there were some publication biases in the sample studies, which mainly concentrated on the issue of fiscal expenditure decentralization.
JEL Classification H77, O12, P35
Bounded Rationality, Heterogeneous Expectation and Endogenous Evolution Mechanism of Housing Price
ZHONGFEI LI* JUN ZHENG YUYUAN HUANG
(Sun Yat-sen University)
Abstract In this paper, we develop the traditional cobweb model into bilateral heterogeneous expectation cobweb model to analyze the endogenous evolutionary mechanism of housing price, and examine the effect of market participants’ psychological expectations upon housing prices through numerical analysis. The results show that, the expectation of fundamentalists does not seem to affect the stability of housing price dynamic system, while the expectation of chartists and developers lead to price fluctuations, thereby affecting the stability of housing price dynamic system. The model also researches the influence of real estate development costs on the dynamic evolution of house price. Development costs not only have positive impact on the fundamental price, but also lead to price evolution bifurcation when the cost increases to a certain critical value.
JEL Classification C62,G02,R31
“FH puzzle”’s Applications for Inter-province and Proofs of the Theory
DINGXING WANG*
(Xiamen University)
Abstract “FH” equation can be used to explain the capital mobility among countries or provinces. We estimate the “FH” equation among provinces and find that the coefficient is not significant. So we include that there exists high mobility among provinces. The mobility results from the intervening of local governments. And a central-local model is made to describe the phenomenon. On one hand, capital mobility is useful for a long time development. On the other hand, the central government pays more attention to the economic performance. All this leads to high mobility.
JEL Classification C23, E22, O11
Formal Financial Institutions Development, Multiplier Effect of Internal Fund and Assets Growth of Chinese Firms
XIAOSHENG JU* CHAOFENG HUANG
(National University of Defense Technology)
DIC LO
(Renmin University of China)
RUILONG GUAN
(China Construction Bank)
Abstract This paper analyzes the impact of the reform of China’s formal financial institutions on the financing constraints that listed enterprises face and thus on their growth, using data of listed companies at industrial sectors from the year 1994 to 2011. It finds that different periods show different influences. During the initial period of 1994—2000, the financial scale enlarged, efficiency improvement and the relative structure of the whole financial sector had significant contributions to firms’ growth. However, things changed in 2001, due to the government’s strategy on big banks, and the structure of financial sector became more unbalanced. Only the scale of financial system, especially that of banks contributed to the growth of firms. This study shows that in the China’s model of financial development, the scale of financial wealth plays the most important role. To release the function of financial sector further, reform in the future should focus on the financial structure adjustments.
JEL Classification D21,G31,H32
Profit Efficiencies and Influences of the Chinese State-owned Commercial Banks: Based on Their Ownership Structure Changes
WEN YANG*
(Shenzhen University)
BANGZHU SUN
(Peking University)
XIANGBIN CHENG
(University of Hertfordshire)
Abstract By constructing a onestep Fourier stochastic profit frontier model, we estimate profit efficiencies and test their influencing factors to aim at the fundamental ownership structural reform of China’s banking institutions since 2003. The results show that the average profit efficiency of the state-owned commercial banks ranks the second in all types of the whole sample. The decisive influencing factors include external supervision from IPO, efficient mechanisms of credit allocation based on improvement of internal governance structure,monopoly power of the state-owned commercial banks, the lasting high growth of China’s economy and technique progress.
JEL Classification C33, D61,G21
China’s Environmental Pollution and Economic Growth
MIN WANG
(Peking University)
YING HUANG*
(Renmin University of China)
Abstract China has experienced more than three decades of rapid growth, but suffers from severe environmental degradation. This paper uses latest panel dataset covering 112 cities from 2003 to 2010 to test the relationship between growth and air pollution. Using traditional environmental Kuznets model, we find that all pollutants exhibit “U shaped” curve, which are radically different from the results found by previous studies. By controlling individual time trend, we show that growth does not have to deteriorate the environment. Finally, we also show that regression results could be completely opposite if we use different data source for the same pollutant.
JEL Classification O13, Q53, Q56
The Expansion of Graduate Education, Returns to Higher Education and Wage Inequality: Empirical Study of Taiwan
WENYI CHEN LILY JIANG*
(Tamkang University, Taiwan)
Abstract The paper analyzes the distributive effect of the expansion of graduate education. We propose a model of twotype labor markets and use data from Manpower Utilization Survey to do empirical study. We find that the expansion of graduate education raises social returns to education for both types of labors. The overall inequality of wages of higher educational labors is mainly from withingroup inequalities. Within each group, the cohort effect on wage inequality is significant, and it decreases for the younger cohorts of educated graduates. This implies that the expansion of graduate education is socially beneficial from the perspective of distribution.
JEL Classification I28, J31, O15
Dismantling Teaching Points: Integrate Education Resources or Reduce Investment in Education?Based on the Analysis of 1996—2009 Provincial Panel Data
DONG DING*FENGTIAN ZHENG
(Renmin University of China)
Abstract The motive of dismantling teaching points is being questioned by many aspects. This article analyses the nationwide provincial panel data from 1996 to 2009 from the perspective of financial expenditure accounted for education. Based on the results of theoretical analysis and FE model、Driscoll and Kraay(1998) method and IV-GMM model empirical test, it indicated that, since education finance ratio decreased dramatically with the proceeding of dismantling teaching points, dismantling teaching points is implemented for local officials selfishness. This paper shows the policy implication that the government should take advantage of coordination strength by undertaking appropriate education finance centralization.
JEL Classification I22, I28, H52
Asymmetric Responses to Cost Shocks and Sticky Prices: Evidence from China’s Manufacturing Firms
YANG LU*
(Chinese Academy of Social Sciences)
Abstract According to the state-dependent pricing theory, the asymmetric and heterogeneity responses to cost shocks and sticky prices were estimated. We found that the price stickiness was asymmetric in manufacturing firms and the downward stickiness was larger than upward stickiness. Furthermore, the sticky price was also affected by the firm’s heterogeneity. Non-neutrality of money is realistic when the price has stickiness. So adjusting the quantity of money can affect output in the short term. However, due to the asymmetric price stickiness and its impacts in macroeconomics, output could decrease more significantly when the central bank adopting tight monetary policy to curb inflation. To the contrary, price level could increase more significantly when central bank adopting expansionary monetary policy to increase macro output.
JEL Classification D21, D23, C25
Disparity between Urban and Rural Areas in China: A Business Cycle Perspective
WEIJIN ZHANG*
(Xi-an Jiaotong University)
CHEN-RAY FANG CHING-HSIANG HUANG
(National Taipei University)
Abstract We analyze what accounts for disparity between urban and rural areas in China from a business cycle perspective. A two-sector, urban versus rural, DSGE model is developed and estimated using 1996—2012 data. Our model replicates the data well. We thus examine cyclical movements of income and consumption for both sectors that are due to various shocks to China’s economy, and the extent caused by these shocks. We also investigate what have caused the widening disparity during 2002—2004 and the lessening disparity for years after 2011, respectively. Finally, the effects of stabilization policies on cyclical movements of disparity are found to be asymmetric.
JEL Classification E32, E60, R23
Accumulation of International Reserves, Goods and Asset Price Inflation, and the Independence of Monetary Policy
JUNFENG QIU*
(Central University of Finance and Economics)
Abstract We show that the accumulation of international reserves will lead to higher money supply and higher goods and asset prices, and will reduce the independence of monetary policy. Monetary policy tools can prevent inflation only in the shortterm but not in the longrun. Even when goods prices are under good control, if people expect that higher inflation will happen in the future, asset prices can rise rapidly. Our model shows that, in the“impossible trinity”, giving up free flows of capital does not necessarily mean that a country can have both a stable exchange rate and an independent monetary policy.
JEL Classification E52,E58,F41
Research on the Effect of China’s Foreign Trade on Productivity, Earnings and Environment: Based on the Threshold Panel Model
YANFANG LYU*
(Dongbei University of Finance & Economics)
DONG WANG SHUWEN CHEN
(Dalian University of Technology)
Abstract In this paper, we construct the single or dual threshold models based on the provincial panel data from 1992 to 2010 to test trade variables’ effects on productivity, earnings, environment and characteristics of threshold. The results show the threshold characteristics of the effect of export and import on different macro variables based on GDP per capita. Studies suggest that eastern regions should expand trade space to enhance the core competitiveness of industries and western regions introduce advanced technology and key equipments to promote local output efficiency; trade development should be synchronous with income growth; regulatory policies shall be supported to rectify and improve the deviation caused by trade policy.
JEL Classification C23,B52,F19
Platform Competition between Cable TV Stations: From Free-to-air to Pay-TV
YUANZHU LU*
(Central University of Finance and Economics)
XU ZHANG
(University of California, San Diego)
Abstract This paper presents a model of platform competition between two cable TV stations. TV stations, producers and viewers play a threestage game, in which the equilibrium advertising levels, subscription fees (under the pay-TV regime) and program quality levels are determined. This paper compares the advertising levels, program quality levels and social welfare levels between social optimum, the free-to-air regime and the pay-TV regime. We find that although under the pay-TV regime cable TV stations charge subscription fees, the equilibrium program quality under this regime may be lower than under the free-to-air TV regime and is always lower than the socially optimal level. When both the nuisance cost parameter and transport cost parameter are small enough or big enough, the pay-TV regime is better than the free-to-air TV regime in terms of the social welfare.
JEL Classification D43, L13, M37
Employment “Polarization” in China: An Empirical Research
SHIBIN LYU*
(Northeastern University at Qinhuangdao)
SHIWEI ZHANG
(Jilin University)
Abstract Through surveying the manufacturing panel data in China from 1998 to 2009, the study suggests that employment “polarization” has appeared,which is featured with the phenomenon that employment growth rate in high-technology industries and low-technology industries has increased more than that in medium-technology industries. Combined with other related studies,the study suggests that employment “polarization”is a global phenomenon. Further analysis shows that, not only wage and industry scale, but also outsourcing, R&D and high-technological capital equipment have played an important role in changing employment.
JEL Classification E24, J23, J24
Railways and Domestic Market Development in the Late Qing Dynasty
SE YAN*
(Peking University)
MENG XU
(University of California, Los Angeles)
Abstract The period between 1881 and 1911 witnessed the first boom of railway construction in China. Using a unique wheat price dataset, we regress price differences for prefecture-pairs on railway construction and find that railways caused a 3.8% drop of price dispersion in prefectures connected by railways. The results remain significant after we control the endogeneity problem. We also find that railways also promoted market integration of the prefectures close to railways. Furthermore, our results show that railways caused decline of the markets along traditional trade routes but promoted new transportation network that connected railways with traditional trade routes.
JEL Classification N75, R11, O18
A Stationarity Reconsideration of China’s Macroeconomic Time Series: Endogenous Breaks and Smooth Transitions
Qing Han*
(Shandong University)
Abstract The idea that a great majority of macroeconomic variables are unit root processes dominates voluminously in empirical research. This paper argues that such kind of recognition needs to be reversed when we take into account of the structural changes. Specifically, the paper utilizes Fourier approximation to approach macroeconomic series. It differs from former literature in tackling breaks in that it converts the estimation of the potential location and style of breaks into a selection of appropriate frequencies used in Fourier expansion, which improves the size and power in testing of a null.
JEL Classification C12, C22, C52