Quantifying the impacts of China’s currency depreciation and capital control: a CGE analysis

A dynamic global multi-regional computable general equilibrium (CGE) model is built to study the effects of Renminbi (RMB) depreciation and capital account liberalization. The simulation results suggest that although the depreciation of RMB can promote China’s trade surplus, it will nevertheless discourage domestic investment, consumption and lead to a decrease of real GDP.     

Kuznets’ swings and intangible investments in forecast: the case of Greece

This article offers an analysis of the relationship between intangible investments and the pattern of local economic productivity in Greece. There are two main objectives in the article: (i) to explore the pattern of economic development in the country; (ii) to find evidence whether this pattern – and its trend – can be better predicted through a forecasting model including intangible investments (next to other relevant factors). To operationalize our study, we use the World Bank Development Indicators database which offers a time-series for Greece for the period from 1981 till date. This data set has two alternative relevant measures for intangible investments: knowledge- and health-related investments. In our analysis we employ first, a centred moving average with a stochastic estimation of the trend, and second a double exponential smoothing, as two alternative (‘deductive’ and next ‘inductive’) approaches to identifying a trend in our data for Greece. We find evidence for a Kuznets swing type of cyclical pattern for Greece – confirmed by triangulation. Most significantly, we also find a relationship between local economic development and intangible investments. These results prompt an evidence-based query about underlying Myrdalian and Tieboutian foundations of wave theory for understanding local economic crises.     

Monopoly power and the firm’s valuation: a dynamic analysis of short versus long-term policies

Summary. Recent anti-trust cases exacerbated the concerns of investors regarding the effects of a firms monopoly power on its production choice, shareholder value, and the overall economy. We address this issue within a dynamic equilibrium model featuring a large monopolistic firm whose actions not only affect the price of its output, but also effectively influence the valuation of its stock. The latter renders time-inconsistency to the firms dynamic production choice. When the firm is required to pre-commit to its strategy, the ensuing equilibrium is largely in line with the predictions of the textbook monopoly model. When the firm behaves in a time-consistent manner, however, the predictions are strikingly at odds. The trade-off between current profits and the valuation of future profits induces the firm to increase production beyond the competitive benchmark and cut prices. This policy may result in destroying shareholder value, and does indeed fully wipe out the firms profit in the limit of the decision-making interval shrinking to zero, in line with the Coase conjecture.Received: 23 December 2003, Revised: 1 March 2004, JEL Classification Numbers: D42, D51, D92, E20, G12.Correspondence to: Anna PavlovaWe thank Steve Spear and the anonymous referees for helpful suggestions. We are also grateful to Franklin Allen, Dave Cass, Peter DeMarzo, Bernard Dumas, Ron Giammarino, Rich Kihlstrom, Leonid Kogan, Branko Urosevic, Dimitri Vayanos, seminar participants at Boston University, University of Colorado at Boulder, Columbia University, MIT, University of Pennsylvania, Princeton University, American Finance Association Meetings, and European Finance Association Meetings for valuable comments. All errors are solely our responsibility.     

Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?

Previously reported effects of institutional quality and political risks on foreign direct investment (FDI) are mixed and, therefore, difficult to interpret. We present empirical evidence suggesting a relatively clear, statistically robust, and intuitive characterization. Institutional factors that affect the likelihood of an abrupt and total loss of foreigners’ capital (i.e., return of capital) dominate factors that affect rates of return conditional on a strictly positive terminal investment value (i.e., return on capital). The evidence is consistent with the hypothesis that expropriation risk is most important among the available measures of different dimensions of institutional quality. A one-standard-deviation reduction in expropriation risk is associated with a 72% increase in FDI, which is substantially larger than the effects of any other dimensions of institutional quality as simultaneously estimated in our empirical models of expected FDI inflows. We show that this evidence is consistent with the predictions of a standard theory of FDI under imperfect contract enforcement and multiple dimensions of political risk.     

Structural Decomposition Analysis of Japan’s Energy Transitions and Related CO2 Emissions in 2005–2015 Using a Hybrid Input-Output Table

Environmental and Resource Economics - This study investigates Japan’s energy transitions in 2005–2015, which involved massive economic disruptions due to the 2011 Great East Japan...     

Regional distribution and dynamics of human capital in China 1985–2014

This study investigates the regional distribution and dynamics of human capital in China. We develop a new comprehensive human capital measure based on the Jorgenson-Fraumeni (J-F) lifetime income framework, in addition to using the traditional education-based human capital measures. We find that the new J-F human capital measure reflects more closely the regional economic disparity than the education-based measures. We also conduct a Divisia decomposition analysis to investigate the contributions of different factors to the quantity and quality growth of human capital and to regional disparity. Our results show that the regional human capital gaps in China are enlarging in general. Education and urbanization contribute most to human capital growth, while population aging shows a strong negative effect. Our estimates create a new provincial level human capital panel dataset from 1985 to 2014, which is useful for empirical work and policy analysis.     

Government incentive strategies and private capital participation in China’s Shale gas development

Shale gas development investments are uncertain and irreversible in the initial stage in China. Flexible incentive strategy is needed for governments to guide private capital participation at different development stages. This study aims to provide analysis governments can use to encourage private investment in shale gas projects according to its plans in an extended real options framework. A social benefits variable is introduced to determine the threshold of social benefits that determine whether the government will choose a deferred or instant incentives strategy. By considering the efficiency factor, we show the optimal arrangements of two kinds of incentives: tax cuts and production subsidies, to implement incentive targets. The results indicate that current market demand and social benefits are the key factors that affect the government’s choice of incentive strategy. We also find that the optimal level of incentives, either tax cuts or production subsidies, are independent of current market demand and future market uncertainty under the delayed incentive strategy, but which affect the optimal level of incentives under the instant motivation strategy, and ignoring the negative influence of unpredictable random events on future market demand might lead to insufficient government incentives in this case.     

Human capital and income inequality in India: is there a non-linear and asymmetric relationship?

The article attempts to provide empirical evidence on the relationship between human capital and income inequality in India in a non-linear and asymmetric framework. To capture both long-run and short-run asymmetries, we have employed the non-linear autoregressive distributed lag approach using the relevant data from 1970 to 2016. Findings of the article suggest that education expansion acts as a major factor in reducing prevailing high income inequality, that is an increase in average years of schooling results in more equal distribution of income. In contrast, high economic growth, inflation and trade openness create unequal distribution of income. The asymmetric causality test results indicate that there is unidirectional causality running from female human capital, economic growth and inflation to income inequality. From a policy perspective, we suggest that education expansion should be used as a powerful tool to mitigate income inequality by emphasizing the quality of education. At the same time, policies geared towards social benefits, inclusive education, training for unskilled workers and price stability should be encouraged to attain fair income distribution in India.     

Deviations from optimal corporate cash holdings and the valuation from a shareholder’s perspective

The trade-off theory of corporate cash holdings predicts that there is an optimal level of cash. We test the trade-off theory by investigating the relation between deviations from optimal cash holdings and the valuation of cash from a shareholder’s perspective. We decompose corporate cash holdings into the optimal level of cash and the deviations from the optimum. We find that the marginal value of cash for shareholders is higher when a change in cash moves corporate cash holdings towards the optimal level and that this relationship holds for both the above-optimal deviations and the below-optimal deviations. We conclude that the results are consistent with the prediction of the trade-off theory of corporate cash holdings.     

Price and nominal wage Phillips curves and the dynamics of distribution in Japan†

This study estimates two types of Phillips curves – the price Phillips curve and nominal wage Phillips curve – for the Japanese economy and analyses the institutional structure of the dynamics of effective demand and income distribution in each period from 1977 to 2007. The estimated results allow us to make the following three findings. First, the Japanese economy was a profit-led regime and a counter-cyclical wage share regime. The combination of regimes can make the dynamics of effective demand and income distribution unstable. Second, the dynamics of price and nominal wage do not reflect each other in Japan by labour–management cooperation. Finally, after 1997, the distributive regime in Japan switched from a counter-cyclical wage share to a pro-cyclical wage share regime because Japanese firms quickened their speeds of employment adjustment. As a result, the dynamics of effective demand and income distribution were stabilised.     

The innovation and performance impacts of venture capital investment on China’s small- and medium-sized enterprises

This study examines the impacts of venture capital (VC) on performance and innovation of China’s small- and medium-sized enterprises (SME). Using unbalanced panel data of 2699 VC-backed and non-VC backed firms in China’s pilot over-the-counter equities market, namely the National Equity Exchange and Quotation (NEEQ) market, during 2005–2014, we find that venture capital financing not only spurs innovation in the Chinese market, but also exhibits significantly positive impact on financial performance. Empirical evidence reveals that syndication of venture capital investment as well as the reputation of venture capitalists helps to create value for VC-backed firms. However, no evidence is found that foreign VC-backed firms perform better than domestic VC-backed ones. The results are robust to a variety of specifications. Our findings imply that the VC financing is an effective channel to promote the development of SMEs at China’s multi-layer capital market and syndicated VC investments and venture capitalists with high reputation shall be encouraged to play a bigger role in nurturing innovation and entrepreneurship in the future.     

Analyze Chinese capital escape ＆ international moving capital influx from net errors and omissions in the balance of payments

With the rapid economic development, the imbalance of China＇s balance of payments gets sever gradually, especially in the continuous increase in the net errors and omissions, which even has exceeded the international alert line. Such scale of net errors and omissions have also presented the flaws of the custody of capital flows, leading to huge capital escape and hot money influx, which needs our attention.     

Misallocation of talent,teachers’ human capital,and development in Brazil

In this study, we investigate the allocation of talent in an economy where teachers play a critical role in developing the human capital of the workforce. To this end, we formulate a Roy model with externality in the occupational choice, as the quantity and quality of teachers are key determinants of workers’ human capital. Our analysis suggests that when individuals with greater abilities opt for teaching careers, the entire workforce benefits. However, frictions in the labor and educational goods markets may lead to a suboptimal allocation of talent and hinder economic growth and development. Our model is calibrated to the Brazilian economy, and our findings reveal a negative correlation between frictions in the teacher’s occupation and per capita output in the Brazilian states. Our results indicate that eliminating friction in the labor market could result in a 16.94% increase in Brazilian income.     

Foreign capital inflow,skilled–unskilled wage inequality and unemployment of unskilled labour in a fair wage model

This paper has developed a three-sector general equilibrium framework that explains unemployment of both skilled and unskilled labour. Unemployment of unskilled labour is of the Harris–Todaro (1970) type while unemployment of skilled labour is caused due to the validity of the FWH in the high-skill sector. There are two types of capital one of which is specific to the primary export sector while the other moves freely among the different sectors. Inflows of foreign capital of either type unambiguously improve the economic conditions of the unskilled working class. However, the effects on the skilled–unskilled wage inequality and the extent of unemployment of both types of labour crucially hinge on the properties implied by the efficiency function of the skilled workers.     

Restricted Hodrick–Prescott filtering in a state-space framework

The current paper extends previous results on Hodrick–Prescott (HP) filtering and shows that it is possible to implement the judgement-augmented, or restricted, HP filter within the state-space framework. The implementation entails augmenting the vector of measurements and altering one of the system matrices of the state-space model for the HP filter. Restrictions can thereby be incorporated in the HP filter, making, e.g., estimation more accessible. An application to US GDP gap estimation illustrates how the restricted filter could be usefully applied in an empirical macroeconomic setting.     

Learning from private and public observations of othersʼ actions

We study the diffusion of dispersed private information in a large economy, where agents learn from the actions of others through two channels: a public channel, such as equilibrium market prices, and a private channel, for example local interactions. We show that, when agents learn only from the public channel, an initial release of public information increases agents? total knowledge at all times and increases welfare. When a private learning channel is present, this result is reversed: more initial public information reduces agents asymptotic knowledge by an amount in order of $\log (t)$ units of precision. When agents are sufficiently patient, this reduces welfare.     

Understanding the divergence of manufacturing enterprisesʼ profitability in China

ABSTRACT

The transition of the Chinese economy is placing increasing pressure on manufacturing enterprises to become more profitable. In this article, we first calculate and analyze the profitability of Chinese manufacturing enterprises based on data from the 2015 Chinese Enterprises–Employees Survey (CEES 2015), and find that there is an obvious profitability divergence tendency of manufacturing enterprises. We then analyze the different actions and strategies that may cause the profitability divergence and find that aggressive strategies in innovation, diversification, market development, and conservative strategies in production expansion tend to result in a good profitability, while the opposite strategies in each action lead a poor profitability. The different adoption of strategies in diverse actions may the possible causes of profitability divergence.

Abbreviations: CEES: China Employer-Employee Survey, PGR: Profit growth rate, SME: Small and medium-sized enterprise