China Economic Quarterly
Vol.13 No.3
April， 2014
CONTENTS
Papers
The Puzzle of Rising Capital Returns in China
……………………………………………………Xiaoguang Liu, Feng Lu 817
Estimates of China’s Capital Accumulation by Industry:Capital Stock and Capital Service Flow
……………………………………………………Linlin Sun, Ruoen Ren 837
Regulatory Capital，Economic Capital，and Regulatory Arbitrage
—Evolution of the Basel Accord Resulting from Compromise between Regulatory Authorities and Financial Institutions
…………………………………………………………Guoping Huang 863
Risk Retention Regulation of Bank Asset Securitization: Mechanism and Welfare Effect
…………………………Guixia Guo, Hemao Wu, Xu Wei, Yong Wang 887
The Effect of Health on the Labor Supply of Mid-aged and Older Chinese
…………………………………………Qin Li, Xiaoyan Lei, Yaohui Zhao 917
A Study on Household Income Mobility in Rural China from 1986 to 2010
…………………………………Binjian Yan, Yingheng Zhou, Xiaohua Yu 939
Effect of Pension on Employment and Firm Average Wage
………………………………………Shuang Ma, Xianrui Meng, Li Gan 969
Estimates of the Return to Schooling from a Sample of Chinese Twins
…………………………………………………………………Zhijun Sun 1001
Is There an Urban Wage Premium in China?—Evidences from Rural to Urban Migrants
……………………………………………………………Guangjie Ning 1021
Average Correlation and Systematic Risk: Evidence from Chinese Market
…………………………Zhenlong Zheng, Weining Wang, Yangshu Liu 1047
Do Investors have Information Acquisition Ability?
—Evidence from Management Earning Forecast in China
……………………………………………………………Xunan Feng 1065
Did Driving Restrictions Improve Air Quality in Beijing?
……………………………………Jing Cao, Xin Wang, Xiaohan Zhong 1091
Genetic Distance’s Effect on Cross-National Income Differences: Theory and Empirical Evidences from China
…………………………………Xinfei Huang, Aimei Zhai, Nan Guan 1127
Labor’s Migration and Chinese Agricultural Production
………………………………………Qingen Gai, Xi Zhu, Qinghua Shi 1147
Is Provincial Economic Growth Convergent in China?
…………………………………Guozhong Zhu, Jihai Yu, Kunyuan Qiao 1171
The Capitalization of School Quality in Home Value: A Matching Regression Approach with Housing Price-Rent Comparison
……………………………………Wanyang Hu, Siqi Zheng, Rui Wang 1195
Does the Columbian Exchange End the Climate Induced Peace-turbulence Cycle?
—A Historical Investigation on the Correlation Between China’s Maize Planting and Peasant Revolts
………………………………Yongwei Chen, Yingwei Huang, Yi Zhou 1215
Creative Goods Exports, Imitation Threat and Intellectual Property
Rights Protection
……………………………………………Xiaodong Guo, Zongshu Wu 1239
The Puzzle of Rising Capital Returns in China
XIAOGUANG LIU FENG ＬＵ
(Peking University)
Abstract Recent years, despite a very high and increasing investment rate, capital returns in China are still rising. This phenomenon is unique when compared to other international development experiences, and is seemingly inconsistent with the law of diminishing marginal returns. This paper attempts to revisit the dual economy model in an endogenous perspective to provide an explanation for this puzzling phenomenon. In the model we built, the interaction of agricultural labor transition and capital formation plays a dynamic role in promoting China’s technological progress. These factors allow technology spillover to be reduced from a “strong condition” to a “weak condition” required for the combined phenomenon of a high investment rate and rising capital returns. Empirical evidence shows that spillover effects do exist in China, and they satisfy the weak condition. Therefore, the combined effects of labor transition and technology spillover boost China’s capital returns.
JEL Classification E22, J61, O33
Estimates of China’s Capital Accumulation by Industry: Capital Stock and Capital Service Flow
LINLIN SUN, RUOENREN
(Beihang University)
Abstract Capital are both storage of wealth and a source of capital services in production, they are not independent of each other. There is no standard capital stock estimates in China’s official statistics.Our paper is to present a consistent capital measurement of capital stocks alongside with the capital services. From our estimation result, China capital accumulation is not excessive. We can find wide range of industry capital input growth rate, service had a high capital accumulation speed, while agriculture and machinery had a low accumulation speed.
JEL Classification O47，E01，E22
Regulatory Capital，Economic Capital，and Regulatory Arbitrage—Evolution of the Basel Accord Resulting from Compromise between Regulatory Authorities and Financial Institutions
GUOPINGHUANG
(Institute of Finance and Banking，Chinese Academy of Social Science;
CFFEX Institute for Financial Derivatives)
Abstract The evolution of Basel Accord is the result of compromise between regulators such as Bank for International Settlements(BIS) and financial institutionsEconomic Capital is regard as the price of perpetual American Put Option which financial institutions are willing to buy against bankruptcy, and Regulatory Capital can be regard as the price required by regulators.Once the departure from Regulatory Capital to Economic Capital exceeds the tolerance of financial institutions, regulatory arbitrage led to the financial crisis. The Regulatory Capital should be converged to Economic Capital if system risk factors are taken into capital allocation
JEL Classification G12，G13，G18
Risk Retention Regulation of Bank Asset Securitization: Mechanism and Welfare Effect
GUIXIA GUO, YONG WANG
(University of International Business and Economics)
HO-MOU WU
(Peking University)
XU WEI
(Central University of Finance and Economics)
Abstract To evaluate the regulatory effect of risk retention, we first build up a two-period model with asymmetric information on asset value between an originating bank and a continuum of risk averse investors. It is found that a flat rate of retention ratio requirement is never optimal for all markets; the optimal retention ratio is dependent on the specific characteristics of the underlying assets, as well as on the risk attitudes of both counterparties.Secondly, it aggravates the adverse selection problem for bad assets, because it undermines the effective informational content signaled by their securitization intensity; for good assets, it has signaling cost. The sub-optimality of the flat rate retention ratio is further confirmed in the moral hazard settingTherefore, to improve social welfare in a more efficient way, the regulators should take the risk attitudes of both counterparties into consideration
JEL Classification G21, G28, D82
The Effect of Health on the Labor Supply of Mid-aged and Older Chinese
QIN LI
(South China Agricultural University)
XIAOYAN LEI, YAOHUI ZHAO
(Peking University)
Abstract This paper by using hypertension as the Measure variable of health and the four waves of the China Health and Nutrition Survey investigates the impact of health on labor supply of the urban and rural Chinese elderly. We find that hypertension has significantly negative effects on urban elderly but the effect does not exist in rural areas. Furthermore the negative effects in the urban areas mainly come from the lower-educated. Our interpretation is: urban workers can afford to retire because they possess social security but rural workers have no option. They have to work even with illnesses.
JEL Classification I10, J26, J14
A Study on Household Income Mobility in Rural China from 1986 to 2010
BINJIAN YAN, YINGHENG ZHOU
(Nanjing Agricultural University)
XIAOHUA YU
(Georg August University)
Abstract Based on the largest longitudinal data at household level in China, this paper studies household income mobility in rural China. The conclusions are: Household income mobility in rural China has a decreasing trend with fluctuations supported by all mobility indexes. The poorest group seems to be accumulated, while middle-income group has more probability to turn poorer than getting richer. The improvement of education attainment, increase in non-agriculture employment, enlargement of household’s productive fixed asset, and cut of taxes and fees have significant positive impacts on household’s income level and income rank.
JEL Classification D31, O12, R20
Effect of Pension on Employment and Firm Average Wage
SHUANG MA, LI GAN
(Southwestern University of Finance and Economics)
XIANRUI MENG
(Central University of Finance and Economics)
Abstract In this paper, we utilized the exogenous and different trend of corporate contribution proportions for its employee’s pension in different regions to identify the impact of firm-provided social security on firm’s behaviors. Results show that each 1 percentage increase in firm’s pension payment proportions will crowd out employee’s wage by 0.6%, and decrease employee’s benefits by 0.6%. Meanwhile, company will reduce its labor force employed, and each 1 percentage increase of corporate contributions will significantly reduce the number of employees by 0.8%.
JEL Classification H32, I38, D21
Estimates of the Return to Schooling from a Sample of Chinese Twins
ZHIJUN SUN
(Beijing Normal University)
Abstract Using a sample of 16—35 year-old twin data generated from 1% Chinese Census data in 2005, we estimated return to education by pooled OLS and within-twin fixed effects model considering the heterogeneity problem. The estimated rate of return is 14% by pooled OLS, while it is reduced to about 4% by within-twin fixed effects model. We construct a method to correct measurement errors by referring to other similar research and the estimator is still less than 6%. In addition, we found individuals with higher abilities and better family backgrounds are more likely to get more education and higher returns to education.
JEL Classification I29, J24, J39
Is There an Urban Wage Premium in China?—Evidences from Rural to Urban Migrants
GUANGJIE NING
(Nankai University)
Abstract Using the Rural to Urban Migrant Survey data (RUMiCI 2008),this paper tests if wage premium exists among different scale cities in China, and further explores the underlying mechanism. We find that after controlling for observable characteristics, wage premium narrows. Further considering the unobservable characteristics and selection bias, urban wage premium no longer exists, and even becomes a wage disadvantage. The coordination hypothesis and the learning hypothesis are only partially demonstrated. This paper sheds some new light on the issues of impact of urban development on labor market, which efficiently allocates labor among different scale cities, and narrows regional wage differentials.
JEL Classification J31, J61, R23
Average Correlation and Systematic Risk: Evidence from Chinese Market
ZHENLONG ZHENG* YANGSHULIU
(Xiamen University)
WEINING WANG
（Industrial Bank CO.LTD.）
Abstract This article extends the job in Pollet and Wilson (2010).By elaborating their model, we derive deep insight into relationship between risk premium and average correlation of different sub-markets. In empirical study, we find that in China, the average correlation of both stock market and bond market contain useful information representing systematic risk, while the variation of the stock market does not. The correlation between stocks and bonds, however, is not priced significantly. Another surprising finding is that the investors in Chinese stock market are risk seeking, while those on the Chinese bond market are risk aversion.
JEL Classification G12, G11, G14
Do Investors have Information Acquisition Ability?—Evidence from Management Earning Forecast in China
XUNAN FENG
(Southwestern University of Finance and Economics)
Abstract This paper investigates investors’ information acquisition ability in China, using Baidu index. We find that investor search behavior increases greatly four days before management earning forecast, and then peaks at the forecast days. This finding provides direct evidence that public information disclosures simulates the private information gathering in McNichols and Trueman(1994)model. We also find that when investor search information just prior to management earning forecast, the pre-forecast price changes reflect more of the upcoming public information and there is less of a price response at management earning forecast. Broadly speaking, the information content of management earning forecast is partially preempted when investors’pre-forecast information acquisitions are high. The further evidence from the relationship between abnormal stock trading and abnormal search also echoes the investors’ information acquisition hypothesis.
JEL Classification G02, G14, G17
Did Driving Restrictions Improve Air Quality in Beijing?
JING CAO, XIN WANG XIAOHAN ZHONG
(Tsinghua University)
Abstract This paper analyzed the impacts of Beijing’s driving restriction policies during and after 2008 Olympics on a series of air quality indicators:API,PM10, NO2 and SO2 concentrations. Although OLS regression shows such policies are effective, after applying“Regression Discontinuity”(RD) method to solve endogeneity problems, we found driving restriction policies, especially the“one-day per week”restriction policy, had little impact on air pollution concentrations. Considering driving restriction might induce drivers to purchase a second car, we conducted a cost-benefit analysis and estimated the welfare cost is about 3% of per-capita GDP, or aggregated for 0.3% of total Beijing GDP.
JEL Classification Q52, Q53, Q58
Genetic Distance’s Effect on Cross-National Income Differences: Theory and Empirical Evidences from China
XINFEI HUANG, AIMEI ZHAI
(Sun Yat-sen University)
NAN GUAN
(Peking University)
Abstract Genetic distance is the time elapsed since two populations separated from their closest common ancestor. We base our research on the model by Spolaore and Wacziarg (2009) and endogenous the genetic distance’s effect on income gap. We use weighted method to constructing the genetic distance between China and 107 countries. The panel data covering 2001 to 2010 shows that genetic distance has influence on income through channels such as human capital and bilateral trade, the result is more significant for the 44 countries that are further in genetic distance to China. The empirical study had shown sufficient robustness.
JEL Classification O15, O33, Z13
Labor’s Migration and Chinese Agricultural Production
QINGENGAI*
(Shanghai University of Finance and Economics,
Shanghai Jiao Tong University)
XIZHU, QINGHUA SHI
(Shanghai Jiao Tong University)
Abstract Based on panel data constructed by Shanxi, Henan, Shandong, Jiangsu and Zhejiang provinces during 2004—2010, we intend to shed light on the relationship between rural labor migration and agricultural production. First of all, this article indicates that the agricultural productivity of male, female, elderly and children is different and can be expressed as 1.00∶0.76∶0.71∶0.57. Secondly, we discover that the migration of male and female labor aged 35—45 can not only improve household’s quit rate and increase the rate of land’s outflow, but also decrease the agricultural growth rate.Finally, according to our findings,Lewis turning point’ has arrived in the current institutional environment.
JEL Classification Q12, O11, O13
Is Provincial Economic Growth Convergent in China?
GUOZHONG ZHU, JI HAIYU
(Peking University)
KUNYUAN QIAO
(Shanghai Finance Institute, Peking University)
Abstract This paper studies the convergence of provincial economies in China by employing Spatial Dynamic Panel Data model and GDP data from 1952 to 2008. We find that there is no overall growth convergence among provinces in China and the spatial correlation is weak. We further study“club convergence”by grouping provinces into eastern, middle, and western regions respectively and find that provinces in eastern region exhibit divergence with overall significant spatial correlation while those in other two regions show convergence with little spatial correlation. This suggests that the lack of convergence is partially caused by the unbalanced development across regions.
JEL Classification C33, E01, E13
The Capitalization of School Quality in Home Value: A Matching Regression Approach with Housing Price-Rent Comparison
WANYANG HU
（Tsinghua University, UCLA）
SIQIZHENG
（Tsinghua University）
RUIWANG
（UCLA）
Abstract Chinese cities only children of property owners rather than renters are entitled to enroll in local public school when both live in a school’s attendance zone. Taking advantage of this “renter discrimination policy” and using a matching regression strategy, we mitigate the bias caused by unobservable neighborhood traits and estimate the implicit price of school quality in Beijing’s housing market. We find evidence that a within-zone housing unit is sold 8.1% more than if it were outside the attendance zone of a Key Primary School. Such renter discrimination policy leads to the over-high home ownership, distorts tenure choice and resource allocation.
JEL Classification H4, R21, R31
Does the Columbian Exchange End the Climate Induced Peace-turbulence Cycle?
—A Historical Investigation on the Correlation Between China’s Maize Planting and Peasant Revolts
YONGWEI CHEN
（Tsinghua University）
YINGWEI HUANG
（Chinese Academy of Social Sciences）
YI ZHOU
（UC Berkeley）
Abstract We use long-term panel data to analyze the impact of maize planting on the occurrence of peasant revolts. We find there was a U-shaped relationship between them: In the short run, planting maize can lower the frequency of peasant revolts induced by climate disaster, but this effect was decreasing. From the Mid and late Qing Dynasty, provinces with longer history of maize planting became more vulnerable to climate shocks, and the frequency of peasant revolts was much higher. It shows that American plants such as maize did not end the climate induced peace-turbulence cycle as they did in Europe.
JEL Classification N15, N55, O13
Creative Goods Exports, Imitation Threat and Intellectual Property Rights Protection
XIAODONG GUO, ZONGSHU WU
（Sun Yat-sen University）
Abstract This paper analyzes in theory the effects of intellectual property rights protection on the exports of creative goods, and based on the established econometric models, empirically analyzes the creative goods exports panel data of the United States in 2006—2010. The results show that the stronger intellectual property rights protection of the importing country increase creative goods exports, and in considering the threat of imitation, such positive effect is still significant. The positive effect of the protection of intellectual property rights on the trade of creative goods is greater than traditional manufacturing goods. Creative goods are more sensitive to intellectual property rights protection than traditional manufacturing good.
JEL Classification F14, K11, O34
