Financial Trilemma in China and a Comparative Analysis with India

A key challenge facing most emerging market economies today is how to simultaneously maintain monetary independence, exchange rate stability and financial integration subject to the constraints imposed by the trilemma, in an era of widespread globalization. In this paper we review and contrast the trilemma policy choices and trade‐offs faced by the two key drivers of global economic growth: China and India. China's trilemma configurations are unique relative to other emerging markets in terms of the predominance of exchange rate stability, and in the failure of the trilemma regression to capture a consistently significant role for financial integration. In contrast, the trilemma configurations of India are in line with choices made by other emerging countries. Over time, India, like other emerging economies, has converged towards a middle ground among the three policy objectives, and has achieved comparable levels of exchange rate stability and financial integration buffered by sizeable international reserves.     

Linder Revisited: Trade and Development in the Spanish Economy

The literature has tended to treat Linder’s hypothesis with excessive simplicity given the absence of any formalization for this intuitive theory on trade potential in manufacturers, closely related to the intra‐industry trade paradigm. Against this background, in this paper we first propose a complete empirical model of bilateral trade containing all the determinants suggested by Linder, with special emphasis being placed on non‐homothetic preferences, national income distribution, international economic convergence and geographic distance. We then test the model in an appropriate case, namely that of Spain during the period of its economic transition running from approximately 1959 to 1986. This period was characterized by increasing openness and structural change, as well as by convergence until that country’s integration into the then European Economic Community. The results confirm the importance of the characteristics of internal demand, essentially of income distribution and non‐homothetic preferences. We find that trade horizons delimited by bilateral proximity in development and geographical distance, together with multilateral convergence in economic development are the main indicators for selecting trade partners as markets and suppliers, thereby reinforcing the idea that foreign markets can be considered as an extension of the national market.     

China's Labor Market Integration and the Effect of Economic Openness

This research theoretically and empirically studies China's labor market integration and the effect of economic openness. We introduce an open parameter to the previous theoretical framework and, based on that, we carry out an empirical study of China's labor market integration measurement from 1987 to 2006, and focus on the impact of economic openness. Research indicates that economic openness has an obvious effect on promoting China's labor market integration. The labor market integration progress differs between regions, with labor markets of coastal areas such as North China, East China and South China, which have one or two labor market centers, being better integrated than those of other interior areas.     

中国劳动市场一体化测度与利益评估

笔者通过比较劳动生产率和劳动边际产出的地区差异与产业差异,对我国劳动市场一体化程度及其变化趋势进行测度。研究发现改革以来,劳动市场地区分割已明显减弱,但产业分割仍然严重;工业部门存在较高技术门槛和体制门槛,传统服务业是农业劳动力转移的主要渠道。政策模拟显示,劳动市场一体化具有巨大的经济社会利益。     

AGRICULTURAL PRICE AND INCOME POLICY: A NEED FOR CHANGE

Agricultural price and income policies operate within a framework established more than 50 years ago. This framework assumes that agriculture is dominated by "family farms," and that the agricultural economy is relatively independent of international and other domestic economic considerations. Yet, the structure of the farm sector today differs greatly from that of 50 or even 20 years ago. The U.S. economy relies on international markets to dispose of 20 to 30 percent of U.S. agricultural output. These changes call for reorientation of U.S. farm policy.     

Global Integration of Central and Eastern European Financial Markets—The Role of Economic Sentiments

This paper examines the importance of different economic sentiments for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEECs' financial markets. Since the integration of formerly strongly‐regulated markets into global markets can also lead to an increase in the dependence of the CEECs' economies on global sentiments, we also investigate the relationship between global economic sentiments, domestic income, and share prices. Applying a restricted cointegrating VAR (CVAR) framework, which allows us to distinguish between the long‐run and the short‐run dynamics, our results for the short run suggest that economic sentiments are influenced by share prices but also offer some predictive power with respect to the latter. What is more, European sentiments play an important role in particular for the CEECs' income and sentiments.     

Market integration in Russia during the transformation years*

A cross‐sectional relationship among Russian regions between price dispersion and per capita income dispersion is used to measure the degree of integration between regional commodity markets. The sequence of cross‐sectional estimations for each month of the period spanning 1992 through 2000 provides the temporal pattern of market integration in Russia, yielding an integration trajectory. The regional fragmentation of the national market increased during the early years of transition but integration has subsequently tended to improve notwithstanding occasional deviations from this trend.     

Do regional trade agreements stimulate FDI? Evidence for the Agadir,MERCOSUR and AFTA regions

The integration of emerging markets into the global economy is heavily promoted by foreign direct investment (FDI ) inflows. Among the factors explaining the location of FDI , regional trade agreements (RTA s) can be relevant for emerging markets, as they can promote economic integration and increase the attractiveness of the region for foreign investors. This paper investigates the impact of South–South trade agreements on the FDI decision of multinationals, where the Agadir, mercado comun del sur (MERCOSUR), and ASEAN free trade area (AFTA) agreements are considered. Three panels of countries are defined, where the members joined a specific agreement or not. Non‐Gulf Arab states are compared to better performing regions in Latin America and Southern and Eastern Asia. The analysis provides evidence that openness to foreign trade and financial markets are among the main catalysts to attract FDI , provided that business‐friendly institutions exist in the host country. Other variables, like the size of the industrial sector, urbanization rates, and external debt appear to be important in some cases. The integration of China into the world economy is a specific trigger for FDI to Asian destinations. Since RTA s influence the market size by reducing barriers to trade, their impact operates via GDP growth and openness. Gains from the agreement are striking for Latin America and Asia, but not for Arab states. To attract more FDI , business‐friendly institutional reforms and mechanisms to support new firm foundation should be implemented in this region.     

Integration Among Asia‐Pacific and International Stock Markets: Common Stochastic Trends and Regime Shifts

Are stock markets in the Asia‐Pacific region integrated with each other and with the US and Japan? The paper examines a number of common stochastic trends among stock prices in the US, Japan, Hong Kong, Korea, Singapore, Taiwan and Thailand. If integration exists it is a fairly recent phenomenon. Institutional and economic considerations suggest the same is true so that a single common stochastic trend among Asian and North American markets is a recent phenomenon. The reason is that the stock markets studied were only recently sufficiently liberalized to permit some form of integration to emerge. Also, not only was the 1987 stock market crash significant, but the 1991 Gulf War also signalled a turning point in the degree of stock market integration among the countries studied.     

Institutional Determinants of Financial Development in MENA countries

Developed and well regulated financial markets are usually seen as a precondition for an efficient allocation of resources and can foster long term economic growth. This paper explores the institutional determinants for financial development in the countries of the Middle East and North African (MENA) region. Institutional conditions are from the International Country Risk Guide. Panel‐econometric techniques are applied to assess the development in the banking sector and the stock market. As a main finding, institutional conditions are important in both financial segments, even after controlling for standard macroeconomic determinants and fixed effects. For the banking sector, corruption seems to be most decisive. For the stock market, the impact of corruption and law and order appear to be relevant. While per capita income and inflation do not seem to play a vital role, openness to foreign trade is quite important for all areas of financial development. Hence, overall, faster real economic integration is of key policy priority to improve financial development as a condition for higher GDP growth. Better law and enforcement practices and anti‐corruption policies are strategies to accompany this process.     

我国境外投资所得税政策与发展

在经济一体化进程不断深化的环境下,我国境外投资出现发展变化,因而境外投资所得税政策有待改进,应与时俱进,借鉴国外成熟政策经验,增强我国企业的市场竞争力,提高政策执行力,同时对境外投资企业提供有利的税收政策支持和保护。     

Why does China protect its labour‐intensive industries more?*

China's tariff structure favours labour‐intensive sectors, and this is at odds with traditional theory of comparative advantage. The paper argues that tariffs in China are a mechanism for protecting technology‐backward domestic – especially state‐owned enterprises (SOEs) from competition technology‐advanced foreign enterprises producing in China. With relatively integrated labour markets and cross‐firm technology differences, SOEs’ subsistence is supported by subsidized credit and limited access of foreign firms’ local production to tariff‐protected domestic markets. Labour market integration and capital subsidies increase the relative cost of labour in SOEs compared to their foreign competitors, hurting more domestic firms in industries that use labour more intensively. Restrictions to FIEs’ (foreign‐invested enterprises) access to tariff‐protected product markets, which protect more labour‐intensive industries, compensate for the greater cost disadvantage of SOEs in labour‐intensive sectors.     

Recent developments in China's labor market: Labor shortage,rising wages and their implications

China's abundant supply of cheap labor has played an important role in its remarkable economic and social development. Recently, however, China has experienced a labor shortage and rising wages, implying that the country's long‐lasting competitive advantage based on its “unlimited” labor supply and low costs is vanishing. We find that structural demographic changes, regional economic growth disparities and the household registration system may have caused the labor shortage. Furthermore, China's continued low wages, relatively low labor share of gross national income, declining proportion of household consumption to GDP , and productivity improvements as well as increasing unit labor costs can be used to explain the recent wage increases. The dramatic development of its labor market signals that China is entering a new stage of economic development. The country's prior successful model of economic development needs to be adjusted to adapt to the new situation in its labor market to achieve sustainable economic development.     

我国居民收入不平等的主要原因：市场还是政府政策？

市场因素和政府收入再分配政策是决定一国居民收入不平等程度的两个重要因素。本文采用中国家庭收入调查（China Household Income Project ,CHIP）住户数据,计算出我国居民市场收入基尼系数与可支配收入基尼系数,并同发达国家进行比较,借此探讨目前我国居民收入不平等是由市场力量造成的,还是政府收入再分配政策力度不足的结果。研究发现,从市场收入基尼系数来看,我国与发达国家之间的差距并不大。由此认为,政府收入再分配政策效果不明显是导致我国居民收入分配不平等状况较发达国家严重的主要原因。加大转移支付等再分配政策力度是缓解和改善目前我国居民收入不平等的主要途径。     

Redistribution, Fiscal Competition, and the Politics of Economic Integration

The paper examines the consequences of the economic integration of factor markets in a model with two countries that redistribute income among their residents. The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants. If either capital or labour is internationally mobile, the countries engage in fiscal competition and the partial integration of capital or labour markets is detrimental to the countries' redistributive ability. A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions. In such a situation, for example, tax competition for mobile capital is softened as the labour market becomes more integrated and even vanishes if both factors are fully mobile. As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.     

Market Size and Economic Integration when Labor Markets are Unionized

The paper explores the effects of economic integration on trade, wages, and welfare when market sizes differ. A duopoly model with two‐way intraindustry trade in similar products and with unionized labor markets is employed. It is confirmed that, for a wide range of different relative market sizes, integration leads to higher wages, employment, and welfare. However, where market sizes differ widely, the reduction of trade barriers leads to a reduction of wages, employment, and—in some circumstances—welfare in the country with the large market.     

Stock and credit market expansion and economic development in emerging markets: further evidence utilizing cointegration analysis

This paper empirically investigates the relationship between equity and credit market development and economic growth, in a sample of five very important ‘emerging’ markets. In particular, employing a multivariate time-series methodology to test for long-run trends and causality between variables that proxy for stock market development, credit market development and economic development. The results seem to suggest that equity markets have a role to play only in relatively liberalized economies, like Chile and Mexico. In financially repressed economies, like India, the equity market does not affect real sector growth. Furthermore, the banking crises in the 1980s and 1990s in Chile and Mexico resulted in a negative relation between economic growth and the credit market. In South Korea, equity and credit markets both affect economic growth, but not vice versa. In countries where the nature of the stock market has been speculative, like Taiwan, a negative relationship is detected between equity market development and economic development.     

The economics of korean unification

We simulate the impact of a customs union and an exchange rate unification of North and South Korea. Factor mobility and technological change are of critical importance. If factor markets do not integrate, the macroeconomic impact on South Korea of economic integration is relatively small, while the effects on North Korea are large. With factor market integration, there is a significant impact on the South Korean income and wealth distribution. If integration is accompanied by external capital inflows, there is a significnt appreciation of the real exchange rate with deleterious implications for the South Korean traded-goods sector.     

沪深港股市动态联动性研究——基于三元VAR-GJR-GARCH-DCC的新证据

随着经济全球化的迅速发展,国际资本市场呈现出一体化趋势,各地证券价格的联动性也日趋显著。本文梳理已有理论文献,并总结经验成果的不足,在此基础上,构建三元VAR-GJR-GARCH-DCC整合分析框架,对沪深港股市联动效应进行了严谨而全面的实证检验。研究结果表明:沪深港三个市场具有联动效应,直接或间接引导对方;沪深股市对港市的新息冲击做出类似的反应,并且它们与港市的动态关联性具有趋同性,该结论为沪深两市合并提供了新证据;三个市场的相关性具有时变的动态特征,"中国因素"与"世界因素"的相关性正趋于增强。上述实证结论对投资者重新认识市场运行机制,合理制定投资策略以及监管当局有效防范国内外股市风险,推进股市整合均具有重要的启示意义。