Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

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Orginal Article
The S-Curve: China versus Its Major Trading Partners
Mohsen Bahmani-Oskooee,Ruixin Zhang
Front. Econ. China. 2013, 8 (4): 467-475.

Abstract   PDF (550KB)

China has been accused of manipulating its currency to gain international competitiveness and enjoy a trade surplus. The S-Curve is a hypothesis that could be used to test the effectiveness of currency devaluation or depreciation. It claims that while future values of the trade balance and current exchange rate are positively correlated, the past values of the trade balance and current exchange rate are negatively correlated. While China’s aggregate trade flows with the rest of the world conforms to the S-Curve hypothesis, disaggregating trade flows by trading partner reveals that not all partners are affected equally by devaluation. Indeed, trade with 8 out of the 24 partners does not support the S-Curve hypothesis.

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The Cosine-Shaped Pattern of Innovations and Technological Advantages: Theory and Evidence
Jiandong Ju,Xuebing Yang
Front. Econ. China. 2013, 8 (4): 476-489.

Abstract   PDF (335KB)

Using data from 24 OECD countries, we find that the relationship between a country’s R&D investment and technological advantage in a sector (measured by the country’s labor productivity of the sector relative to the rest of the world) is non-monotonic. In particular, for countries whose technology levels are much lower or higher than the rest of the world in a sector, their sectoral R&D investment declines as their advantages in the sector improve; for counties with middle technology levels, the opposite is true. Extending the Eaton and Kortum framework, we develop a static model to theoretically analyze the relationship between R&D investment and technological advantages. We show that when the research efficiency in a sector is sufficiently elastic with respect to the sectoral technological advantage, a country’s R&D investment increases with its technological advantage, and vice versa.

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On the Fundamentals of a Successful Reform for National Prosperity—An Economic Analysis Based on the Practice of China’s Reform
Xudong Chen,Guoqiang Tian,Jijun Xia
Front. Econ. China. 2013, 8 (4): 490-515.

Abstract   PDF (378KB)

This paper discusses the fundamentals required for successful reform, i.e., the necessary institutional changes required to make a nation grow sustainably wealthier. It argues that enriching the people is a prerequisite for a prosperous nation and further reveals the inherent logic behind the statement “in order to enrich the people, they must be given private rights, and in order to protect the people’s private rights, public power must be limited.” Based on this argument, we examine and analyze the experience of China’s reform over the past 30 years and come to the conclusion that it is necessary to transform government functions and further deepen market-oriented reform. We hold that China’s economic performance bears no special or exceptional economic law, and there does not exist the so-called “China Model” characterized by government taking the leading role as a relatively mature, stable, and widely applicable development model, but that there does exist a Chinese development path or experience featuring the inherent logic of “prospering the nation through enriching its people” that can be employed by countries all over the world.

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Which Type of Urbanization Better Matches China’s Factor Endowment: A Comparison of Population-Intensive Old Puxi and Land-Capital-Intensive New Pudong
Guanzhong James Wen,Jinwu Xiong
Front. Econ. China. 2013, 8 (4): 516-534.

Abstract   PDF (283KB)

Based on a comparative study of New-Pudong (East Shanghai) and Old-Puxi (West Shanghai) in their respective ability to absorb rural migrants, the very essence of urbanization, this paper finds that, constrained by the current hukou (household registration) system and land tenure system, although New-Pudong has emerged as one of the most modernized urban areas in the world, it did so under an urbanization model that is government-dominant and characterized by high land-intensity and capital-intensity. This model represents a serious mismatch in terms of China’s factor endowment that is characterized with a large but relatively poor rural population. In sharp contrast, guided by the market mechanism under private land ownership and free migration, Old-Puxi emerged as an urbanization model that was very adaptable to China’s factor endowment and stage of development. Therefore, as a model of endogenous urbanization, Old-Puxi is more efficient and inclusive, at the same time more sustainable economically and environmentally, and for this reason more applicable to China at a time when China needs to urbanize most of its rural population urgently to avoid the further worsening of the rural/urban divide and income disparity.

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Industry Mix and Curvilinear Spillovers from FDI in China
William M. Tracy
Front. Econ. China. 2013, 8 (4): 535-551.

Abstract   PDF (1371KB)

This paper uses industry and province specific Chinese industrial data to demonstrate a potential causal link between two strands of the FDI literature. The first strand suggests that the impact of spillovers from inward FDI is less robust in middle-income economies than in either high-income or low-income economies. The second strand suggests diminishing returns of inward FDI on horizontal labor productivity in low-technology industries but not in high-technology industries. This paper suggests a link between these two phenomena. Specifically, if both FDI intensity and industry mix vary with the level of economic development, then an industry-dependent relationship between inward FDI and horizontal spillovers could cause middle-income economies to derive fewer benefits from inward FDI than either high- or low-income economies. This paper also verifies the curvilinear relationship between FDI in low-technology industries and horizontal labor productivity without relying on problematic FDI from Hong Kong, Taiwan and Macao.

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Fiscal Residuum and Localization of Foreign Direct Investments among Chinese Provinces
Giuseppe Lucio Gaeta,Salvatore Ercolano,Elina De Simone
Front. Econ. China. 2013, 8 (4): 552-570.

Abstract   PDF (2181KB)

This paper examines the impact of fiscal residuum—the excess of expenditure benefits over tax burdens—on the location choice of foreign direct investments among China’s provinces. Using data provided by the National Bureau of Statistics of China we propose two fiscal residuum indexes for China’s provinces over the period 1998–2004. According to Buchanan’s original definition of fiscal residuum a first index is given by the difference between government expenditure and revenue. A second index measures enterprises’ net fiscal benefit and is calculated as the difference between public expenditure that affect business activities and taxes paid by enterprises. We found that the first index does not significantly affect the FDI localization choice while the second one positively affects it. When looking at different subsets of provinces we found that for eastern provinces the first index has a positive and significant effect. These results confirm the role of the net fiscal benefit as a determinant of FDI inflows at the provincial level.

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An Estimation of the Impact of Oil Shocks on Crude Oil Exporting Economies and Their Trade Partners
Farhad Taghizadeh Hesary,Naoyuki Yoshino,Ghahraman Abdoli,Asadollah Farzinvash
Front. Econ. China. 2013, 8 (4): 571-591.

Abstract   PDF (361KB)

This research evaluates the impact of oil price shocks on oil producing and consuming economies; we used a simultaneous equation framework for different countries with business relations. As expected, we found that oil-producers (here, Iran and Russia) benefit from oil price shocks. However contrary to previous findings, they also benefit from the indirect effect through their trade partners. For oil-consuming economies, the effects are more diverse. In some countries, output falls in response to an oil price shock, while some others seem to be relatively immune. Generally, those countries which trade more with oil producers gain indirect benefits via higher demand from oil-producers. For instance, the Netherlands, Germany, France, Italy, the US, the UK, and China get a negative direct effect and positive indirect effect from oil producing countries. This is exactly the result that we anticipated. India has both negative effects directly and indirectly and seems to suffer more in a positive oil price shock. For Japan, Spain, Switzerland and Turkey the results are reversed. They benefit from an oil shock directly and indirectly.

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“Convergence” or “Divergence”? —Rethinking Regional Integration of the Past Two Decades
Huan Li
Front. Econ. China. 2013, 8 (4): 592-607.

Abstract   PDF (464KB)

The European Union (EU), North American Free Trade Agreement (NAFTA) and Association of Southeast Asian Nations (ASEAN) are the three biggest regional economic cooperation organizations in the world. What roles have these three organizations played in both domestic development and the evolving global trend of regional integration? This paper investigates the inequality among these three organizations for regional economic cooperation based on cross-national parallel data from thirty-nine countries over the period 1989–2008. By using the Theil index decomposition, this paper finds that the interregional disparity is the main source of inequality. This paper also finds that intraregional disparity rose significantly from the mid-1990s. ASEAN contributes an equalizing force to the change, while NAFTA contributes a disequalizing force. From the empirical tests based on the Barro non-linear growth regression model, our results show that the whole sample and some subregional samples (ASEAN and EU) support the convergence hypothesis. ASEAN’s convergence speed is the fastest, which testifies to the fact that the convergence speed of the transition path is faster than the long-term path.

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8 articles