Why do commercial banks hold government bonds? The case of Japan

We investigate the determinants of the demand for Japanese government bonds (JGBs) by commercial banks in Japan. In particular, by estimating portfolio equations for JGB demand and bank loans, based on a panel data set from the late 1990s to the 2000s, we rigorously test the popular assertion that the long stagnation of the real economy caused a shift in the portfolios of commercial banks from bank lending to JGBs. We find that the popular assertion is not empirically supported. Rather, the portfolio shift from loans to JGBs has been caused by a fall in the ratio of the loan rate to unit lending costs, or the bank’s price–cost margin for lending.     

To upgrade or to relocate? Explaining heterogeneous responses of Chinese light manufacturing firms to rising labor costs

This paper studies the heterogeneous responses of Chinese light manufacturing firms to rising labor costs from the perspective of New Structural Economics. Using the first-hand pilot survey data, we find that rising labor costs have been the number one challenge facing firms, and that despite the dominant strategy of technological upgrading, there is a substantial difference in responses across different firms. In addition, we discover that industrial and firm-specific labor intensity are key determinants of the heterogeneous strategies across firms in response to rising labor costs. We conclude that intrinsically more labor-intensive industries and firms are more likely to choose relocation instead of upgrading as a strategy to cope with the rising labor costs.     

Financing investment in East Asia: Regional or global savings?

This paper investigates the extent to which domestic investment in East Asian countries is financed by domestic, (East Asian) regional and global savings in order to infer the relative importance of regional vs. global capital markets in East Asia. Panel regression results show that regional saving in East Asia plays a much more important role than global saving in financing investment in the region. The results suggest that global capital flows, despite its huge volume in East Asia, does not contribute to proper investment financing. The results also show that Japanese saving has significant effects on regional investment but Chinese saving does not.     

Pain or Gain? Chinese Experience of Capital Account Liberalization

The neoclassical growth model predicts that capital account liberalization could potentially enhance economic performance; however, there is no consistent empirical evidence to support this positive association. Using a novel dataset of Chinese capital account openness, this paper demonstrates a positive relationship between capital account liberalization and aggregate economic performance. The difference‐indifferences method is used to capture the causal effect of capital account liberalization on economic performance by taking advantage of variations in both external financial dependence and the progress of capital account openness. We investigate three channels that could strengthen this positive relationship using a firm‐level dataset. We find that capital account liberalization could: (i) alleviate the degree of resource misallocation, and this effect is more significant in industries relying heavily on external finance and in regions with more favorable business environments; (ii) enhance firms’ total factor productivity; and (iii) promote innovation. Our findings suggest that a strategy of gradual openness will leave some leeway not only for improvement in domestic markets but also to mitigate exposure to unfavorable global shocks.     

A dilemma of Chinese healthcare reform: How to re-define government roles?

This paper discusses the government's roles in the healthcare sector in China. The paper begins with an introduction to the Chinese healthcare sector (supply and demand side) and to the current government's roles. It then reviews the recent transformation of the healthcare sector, with an emphasis on the change in the government's roles and the problems resulting from this transformation. The following is an examination of the latest healthcare reform policies and an exploration of pending government roles. Contrary to the opinion that problems existing in Chinese healthcare are primarily caused by market failure, this paper argues that the historically ambiguous and inappropriate roles of government in the provision of health care should be reexamined. This paper concludes that the most important issue facing the Chinese healthcare sector is finding the optimal balance between market and government.     

Did mergers help Japanese mega-banks avoid failure? Analysis of the distance to default of banks

This paper applied the distance to default (DD) measure to five mergers among large Japanese banks during the crisis period. The DD helps us analyze whether mergers that took place in the late 1990s and 2000s made the merged banks financially more robust, as intended. Our findings include: (1) A merged bank fundamentally inherits financial soundness of premerged banks, without incremental value from the merger; and (2) A negative DD was observed following the merger. The findings of this case study are consistent with the view that large Japanese banks’ mergers either failed to implement intended scale economies or were motivated by a belief in the too-big-to-fail policy.     

Publish or perish? A tale of academic publications in Chinese universities

This study examines academic resource (mis)allocation in China by focusing on the correlation between publication in leading economics journals in China and researchers' subsequent academic performance. Our findings demonstrate that researchers with a track record of publication in the most exclusive academic outlets publish more papers in high quality journals, with an average 12.4% increase, as they move up the career ladder, obtain more external grants, and acquire more executive powers. As the observable channels fail to explain most of the publication persistence, the increase in the research productivity along a researcher's career trajectory is attributed to other mechanisms that are suggestive of resource misallocation, including a reputation effect gained from initial visibility in leading academic outlets and non-academic channels facilitated by better access to social resources, among other mechanisms. Our findings depict some intriguing observations regarding the ecosystem of a prominent subject in Chinese academia and reveal tentative evidence on how structural changes, such as fostering a more open and international research environment, could benefit early career researchers.     

Who determines Chinese firms' engagement in corruption: Themselves or neighbors?

We investigate the determinants of firm corruption and highlight contagious diffusion of firm corruption under mutual influences of firms' past corrupt history and between peers. The analysis finds that firms' decision-making on engagement in corruption can be affected vertically by their own past experience of bribing bureaucrats and horizontally by the contagion effects of neighbors' observed malfeasance, while there is substantial regional heterogeneity. Moreover, these horizontal contagion effects are nonlinear depending on the distance between neighbors. We also identify three channels underlying “osmosis” of corruption: firms' geographic networks, information exposure, and local marketization. The strongest contagion effect appears in the eastern region, indicating that petty firm corruption can develop into a systematic phenomenon. More practical anti-corruption policies call for cooperation in design and implementation across administrative areas.     

Efficiency or equity? The effect of an exogenous agricultural commercial shock: Evidence from Manchuria in the 1930s

The adoption of high-value cash crops (HVCs) is considered an efficient way to improve farmers' productivity and welfare, although the systematic empirical evidence is limited. By exploiting an exogenous commercial shock for soybeans and microlevel rural survey data from Manchuria of China in the 1930s, where factor markets were relatively well functioning, this study investigates the influence of HVC cultivation on farmers' agricultural performance, welfare, and inequality both theoretically and empirically. We find that (i) larger farms devote a larger proportion of land to HVCs and that (ii) farmers who cultivate a larger proportion of HVCs have higher agricultural productivity, profit, net income, and expenditure. Furthermore, the adoption of HVCs lowers profit, income, and expenditure inequality by enhancing income from wages relative to land rents, which benefits households with less land.     

Direct or indirect? The impact of political connections on export mode of Chinese private enterprises

The learning-by-exporting effect can vary by mode of export (direct or indirect via intermediaries), which raises the importance of understanding factors associated with how firms export. This paper investigates the effect of political connections, one form of informal institutions particularly important in China, on the choice of export mode by Chinese private enterprises. By using firm-level survey data and addressing endogeneity, we find that having political connections significantly increases the probability of direct exporting, while it has no effect on indirect exporting through trade intermediaries. We further test the underlying mechanisms behind these findings. The results show that corporate political connections can help alleviate financial constraints by promoting the (external) access to bank credits and by reducing the (internal) extra-tax burdens, which are disproportionately important for direct exporting relative to indirect exporting. In addition, we find limited evidence supporting the importance of contract enforcement and managerial efficiency as channels though which political connections affect the choice of export mode.     

Environmental awareness and household energy saving of Chinese residents: Unity of knowing and doing or easier said than done?

Household energy saving is important for the realization of emission peak, carbon neutrality, and energy security goals in China. However, no conclusion has been reached on whether public environmental awareness can promote household energy saving. There are two major defects in previous studies. One is that they focus on the public intention to save energy rather than the real behavior; the other is that the endogenous problem caused by the measurement bias of environmental awareness is ignored. Based on China Family Panel Studies (CFPS) database, this study selects the change in average monthly household electricity charge and electricity consumption as the proxy variables of energy saving, and introduces the public perception level of social security and government corruption as the instrumental variable of environmental awareness. It is found that improvement of environmental awareness has statistical significance for household energy saving and there is still a lot of room for improvement. This conclusion keeps valid in several robustness tests. Further analysis shows that improvement of environmental awareness is more likely to promote energy saving in rural households, male household heads, and young people; and that education and income have a joint moderating effect on the energy saving effect of environmental awareness.     

On the performance of the foreign subsidiaries of Korean banks: are securities investments really profitable?

This study, by focusing on the securities investments of Korean banks’ foreign subsidiaries, analyzes the background of the increase in those securities investments, the present situation, and the influence of securities investments on performance. The major sources of income for Korean banks’ foreign subsidiaries are composed of loans, foreign exchange activities, and securities investments. However, as loans and foreign exchange activities are not profitable because of high funding costs, tighter supervision in host countries, competition among the Korean banks, and the concentration of exports and imports on specific countries, the foreign subsidiaries of Korean banks have increased the weight of their securities investments. The results of this analysis reveal that securities investments affect negatively on the performance of Korean banks’ foreign subsidiaries, and it strongly suggests that the foreign subsidiaries of Korean banks—short on credit, size, technology, experience, and networking—need more preparation for financial globalization.     

The Contribution of Childcare to Local Employment: Poor Work or Work for the Poor?

In recent years local economic development and regeneration agencies have begun to examine how locally based childcare can contribute to economic and social regeneration. This paper is based on current research by the authors and reports on the expectations and current realities of community based childcare as part of an economic regeneration strategy. It suggests that whilst the incorporation of childcare into urban regeneration strategy holds the potential to reduce the barriers to labour market involvement by mothers in low income households, less positive effects are also identifiable. Early evaluation is used to show that the commodification of care within urban regeneration policies reinforces care work as low paid, insecure gendered employment. It concludes by arguing that a more critical evaluation of both the economic and social impact of childcare on area regeneration is necessary.     

How connected are Chinese farmers to retail markets? New evidence of price transmission

This paper examines the extent to which Chinese farmers are connected to regional agricultural markets by looking at the intensity of price transmission from retail markets to the farmgate. This intensity is indicative of the extent to which farmers might benefit from improved marketing opportunities and be exposed to price risks. We estimate the elasticity of farmgate prices to retail prices using price data for 170 markets, in 29 out of 33 provinces of China, at the detail of 12 main products and for the five-year period 1996 to 2000. In each province we find strong linkages between retail and farmgate prices with elasticities ranging between 0.6 and 1 and intensifying over time. This suggests that Chinese farmers are generally well connected to retail markets and that this connectivity has strengthened in the period considered, creating not only new opportunities but also new risks. It is also found that linkages are relatively weak in inland provinces, which is a point of concern in view of Chinese policies to create equal opportunities and equitable growth.     

External aid: help or hindrance to export orientation in Africa?

The central proposition of this paper is that African countriesshould start thinking through undertaking an orderly transitionfrom the current high dependence on foreign aid for financingeconomic and social development. Aid dependency should be reducednot because the international development community believesit will eventually happen, but because such dependence on foreignaid could substantially impair Africa's export competitivenessand therefore derail the Continent export-oriented developmentstrategies. A combination of further debt relief, reforms ofthe current aid regime and enhanced policy environment shouldallow a managed transition to a mixed menu of official developmentassistance (ODA) and private capital flows. However, the attemptby Africa to increase its share of investments from internationalprivate capital markets should be firmly anchored to the basictenets of an export-based development strategy. To provide thebasis for these policy conclusions, I estimate the relationshipbetween ODA, real exchange rates (RER) and non-traditional exportsfor a panel of 62 developing countries, including 28 from Africa.Unsustainable ODA flows were shown to have caused substantialpartial RER overvaluation in many African and non-African countries.Moreover, exceptionally high aid-dependent African countrieshave either experienced, or are likely to experience, overallRER overvaluation. Conditional on absence of RER overvaluation- a proxy for good policy environment of relevance to exportperformance - a robust Laffer curve-type relationship existsbetween aid and non-traditional exports through the misalignmentof RER relative to its equilibrium. The Laffer curve relationshipjustifies a 'precise' concept of aid dependency, based on theextent to which excessive ODA flows exceeded the threshold beyondwhich more ODA actually hinders rather than helps export expansion.According to this concept, several African countries were characterisedas being 'aid dependent'.     

Self-employment of Chinese rural labor force: Subsistence or opportunity?—An empirical study based on nationally representative micro-survey data

Self-employment is an essential form of non-agricultural employment, and its nature has been rarely identified in recent studies. From the perspectives of the human capital, social capital, and family assets of rural laborers, this study focuses on determining self-employment by using the nationally representative data on the rural labor force in China. Through the static comparative analysis between three groups of laborers in self-employment, wage employment, farming, and the dynamic comparative analysis of laborers entering into and exiting from self-employment, the study shows that self-employment of rural laborers in China is almost opportunity-driven or moving toward opportunistic self-employment. Human capital, social capital, and family assets promote rural laborers shifting from wage employment to self-employment and stimulate the establishment of high-value enterprises. The study suggests that local governments should increase the investments in rural education and vocational skills training and strengthen the availability of rural credit to lay a good foundation for self-employment activities in rural areas.     

What happens to Japan if China catches a cold?: A causal analysis of Chinese growth and Japanese growth

In this paper, we conduct an empirical study to investigate the directionality of the dependence between the Chinese economy and the Japanese economy. Taking a probabilistic causal approach, we infer the causal dependence among the Japanese economy and the Chinese economy based on observed data. We find evidence that the Chinese growth has both contemporaneous and temporal causal effects on Japanese growth, though the effect is very small. We did not find any evidence that the Japanese growth might have temporal or contemporaneous causal effect on Chinese growth.     

Emporiophobia (Fear of Markets): Cooperation or Competition?

Widespread emporiophobia (fear of markets) has important policy implications, since it leads voters to demand anti‐market policies. There are many reasons for this anti‐market attitude; however, economists could reduce emporiophobia if we stressed cooperation rather than competition in writings and policy discussions. In a sample of introductory textbooks, competition is mentioned on average eight times as often as cooperation. The fundamental economic unit is the transaction, and transactions are cooperative. The benefit of a market economy—increased consumer surplus—comes from cooperation through transactions, not from competition. Competition in a market economy is competition for the right to cooperate. Competition is important because it guarantees that the best cooperators will win and because it establishes the efficient terms for cooperation, but cooperation is fundamental. For most people, competition has negative connotations since it focuses on losers, while cooperation implies a win–win situation. Other implications involve the morality of the market, “giving back,” and characteristics of market failures.     

“Subsidies” or “taxes”? Corporate credit misallocation induced by the nexus of state-owned enterprises and state-owned banks

Diverging from common claims made in the literature, this paper shows that “two-way” credit misallocation is linked to state ownership status. Specifically, not all Chinese state-owned firms benefit from their ownership status by obtaining lower interest costs as a type of subsidy. Some firms are subjected to higher interest costs as a form of tax. We report further evidence for the relationship between financial development and economic growth by accounting for heterogeneity in interstate banking coverage. From listed and unlisted firms’ data, we find that when the presence of state-owned banks is strong, state ownership-associated distortions in interest costs are more severe.