Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

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Telephone Penetration and Economic Growth in the APEC Region: A Simultaneous Non-Linear GMM Approach
Eng Kooi Lim, Zhiqi Chen
Front Econ Chin. 2012, 7 (3): 339-362.  
https://doi.org/10.3868/s060-001-012-0015-4

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We examine the contributions of the telecommunications infrastructure to economic growth in the Asia-Pacific Economic Cooperation (APEC) economies during the period from 1982 to 2003 using a modified version of the model developed by Roller and Waverman (2001). Our estimation results show that, consistent with Roller and Waverman (2001), telecommunication infrastructure has a significant effect on economic growth in the APEC region and that the inclusion of country fixed effects is important for obtaining a more reliable estimate of the growth effect. Moreover, the magnitude of the growth effect is inversely related to the level of telecommunications infrastructure in the APEC economies. While the marginal effect of an increase in telecommunications infrastructure in the APEC region is smaller than that in the OECD countries found in Roller and Waverman (2001), the total contribution of telecommunication infrastructure to economic growth is larger in the former than in the latter.

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Signaling Product Quality by Price
Shane Parendo, Cheng-Zhong Qin
Front Econ Chin. 2012, 7 (3): 363-372.  
https://doi.org/10.3868/s060-001-012-0016-1

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This paper analyzes the role of price as a signal of the quality of a monopoly firm's new product. The quality of the goods is drawn from a continuum and is unknown to consumers. We establish a unique separating equilibrium using equilibrium characterization results for signaling games. The equilibrium price monotonically increases with quality levels and exceeds the complete-information monopoly price for all quality levels but the lowest one. However, the upward distortion decreases as the proportion of pre-informed consumers increases. These results extend both the signaling role of price and characteristics of the separating equilibrium as established in Bagwell and Riordan (1991).

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Constructing the Monetary Conditions Index for China
Weibo Xiong
Front Econ Chin. 2012, 7 (3): 373-406.  
https://doi.org/10.3868/s060-001-012-0017-8

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How can we fit different monetary transmission channels together to understand the effect of China’s monetary policy? This paper focuses on China’s monetary conditions and aggregate demand in terms of the monetary conditions index (MCI), which has been widely used as an important indicator for central banks, financial institutions, and scholars. To construct an MCI in the context of China over 1987Q1–2010Q2, we consider three channels through which monetary conditions might influence aggregate demand: the primary lending rate, the real effective exchange rate, and the bank credit. The weights of the component variables are obtained by estimating both the IS equation and the vector autoregressive model (VAR), which yield somewhat similar results. Further empirical tests show that the MCIs we derived contain useful information about future output growth and inflation in China over the short and medium term. From a historical perspective, the MCI we derived is more informative than individual monetary variables for the understanding of the development of China’s monetary conditions between 1987 and 2010.

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Economic Development, Risky Sexual Behavior, and AIDS Epidemics—Theory and Evidence
Xue Qiao, Xiaohan Zhong, Sin Sung
Front Econ Chin. 2012, 7 (3): 407-433.  
https://doi.org/10.3868/s060-001-012-0018-5

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In this paper, we present a simple theoretical model to investigate how economic development affects AIDS epidemics through its influence on individuals’ sexual behavior, building on the literature on economic growth with endogenous mortality concern. We employ provincial data from China on the incidence rate of AIDS between 2002 and 2008 to test the theoretical predictions. The findings are: (1) a rise in personal income/wealth induces more safe sexual activities and reduces the prevalence of AIDS; and (2) increases in public health expenditure do not have a significant positive impact on individuals’ preference of risky sexual activity over safe sexual activity.

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A Comparison of Technology Firms in Beijing and Shenzhen
Zhaoming Cui, Leonard K. Cheng, Lian Zhou
Front Econ Chin. 2012, 7 (3): 434-464.  
https://doi.org/10.3868/s060-001-012-0019-2

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Beijing and Shenzhen are both well known for their high-tech industries. This paper compares the financial performance of the two cities’ technology firms and explores the effects of the firms’ operating characteristics and strategy choices on their performance. We find that when comparable samples are used, the firms in Beijing performed better than those in Shenzhen. In addition, for firms both in Beijing and Shenzhen, the ratio of current asset to total asset had a significantly positive effect while both short-term and long-term debt-asset ratios had a significantly negative effect on the performance. The strategy variable sales expenses as a fraction of the cost of goods sold had a significantly positive effect on the performance of firms in Beijing, but the positive effect on firms in Shenzhen was not significant. R&D inputs contributed significantly to the pre-tax profitability of Beijing firms, but had no significant effect whatsoever on Shenzhen firms.

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The Role of Family Background for Earnings in Rural China
Tor Eriksson, Yingqiang Zhang
Front Econ Chin. 2012, 7 (3): 465-477.  
https://doi.org/10.3868/s060-001-012-0020-6

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This paper provides estimates of brother income correlations for rural China. Brother correlations are a parsimonious measure of the importance of family and community background as determinants of individuals’ economic status. We find internationally high levels of income similarity for brothers and siblings: 0.57 and 0.58, respectively. Compared to the 1990s, income correlations have decreased in more recent years, but remain high. Furthermore, we document virtually no differences between the coastal and interior provinces and by father’s education. The high brother correlations imply that the high level of income inequality in China is likely to persist.

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Trade Restrictiveness and Deadweight Loss in China’s Imports
Bo Chen, Hong Ma
Front Econ Chin. 2012, 7 (3): 478-494.  
https://doi.org/10.3868/s060-001-012-0021-3

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China is believed to have gained immensely from its admission into to the World Trade Organization (WTO) in 2001. One of the direct gains comes from the lessening of deadweight loss (DWL) due to tariff reduction. Conventional measures for DWL, however, are too aggregate to capture the trade policies, which are determined at a much higher disaggregated level, and ignore the interactions between tariff and corresponding import demand as suggested by theories. In this paper, we first systematically estimate the import demand elasticities at a highly disaggregated level and then match them with the most detailed lines of the applied tariff for the most favored nations as reported by the WTO. Using the detailed matching data, we construct Feenstra’s (1995) simplified trade restrictiveness index (TRI), which captures the covariance of tariff and the corresponding demand elasticity. Finally, we use the TRI to compute the DWL from1997 to 2008 and find that the DWL due to the tariff barrier was reduced to 0.73% of GNI in 2008, noticeably lower than the highest previous mark of 4.58% of GNI in 2001.

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