China's economic development: does exchange rate and FDI nexus matter?

This study aims to investigate the relationship between China's exchange rate, foreign direct investment (FDI) inflows, and economic development. We applied the bound testing approach on aggregate level data from 1981 to 2013. The results showed that the Chinese economy benefitted from a lower exchange rate over this period, and that there was a direct link between FDI inflows and economic development on an aggregate level both in the long and short run. The results of the Granger causality test identified a long‐ and short‐run association among these variables. The GMM estimations with dummies for financial crises and RMB exchange rate policy fluctuations also confirmed the growth enhancing impact of the exchange rate and FDI inflows. To promote sustainable economic development in the future, China should focus on improving the levels of domestic investment and human capital, as well as supervising the level of openness and capital controls.     

Exchange rate regimes and real exchange rate volatility: Does inflation targeting help or hurt?

This paper revisits the comparison of the effects of inflation targeters versus hard fixers and intermediate exchange rate regimes. In particular, we are interested in exploring the impact of inflation targeting (IT) on real effective exchange rate (REER) volatility for a panel of 62 developing countries over the period 2006–2012. We also analyze the impact of IT regimes on REER in terms of its two component parts, i.e. relative tradable prices across countries as well as sectoral prices of tradables and nontradables within countries. The paper accounts for self-selection concerns regarding policy adoption and examines the effects of commodity exports and foreign exchange intervention. Notably, IT regimes seem to have experienced greater REER volatility, largely driven by external prices in developed countries. For developing countries, IT regimes show no difference in REER volatility, though there is some evidence that they have lower volatility in internal prices.     

Why do exports react less to real exchange rate depreciations than to appreciations? Evidence from Pakistan

We examine if and why export responses to real exchange depreciations are lower than those to appreciations. We document this asymmetric response using macro-level data for Pakistan and show that export adjustments after depreciations are less than one-third as fast as those to appreciations. We use product-destination level data to examine three complementary drivers of this asymmetry: (i) information frictions that increase the search costs of finding new clients; (ii) supply constraints related limited access to credit that reduce exporters’ capacity to scale up after relative prices become more favorable; and (iii) reduced prices in US dollars offered by international buyers after local currency depreciations, akin to a pricing-to-market mechanism. We find evidence of the three drivers explaining the dampened export response to depreciations. Policymakers in developing countries should consider addressing these issues to maximize export responses to real depreciations.     

How do changes in household economic conditions affect cognitive function?

This study examines the effects of changes in household economic conditions on cognitive function using individual panel data from the National Survey of the Japanese Elderly. This study captures the objective and subjective economic conditions and examines which aspects of economic conditions affect cognitive function. The results demonstrate that deterioration in economic conditions damages cognitive function. In particular, objective economic conditions measured by income affect the cognitive function of Japanese men. This study also assesses possible pathways through which economic conditions affect cognitive function.     

Do exchange rate arrangements and capital controls influence international capital flows and housing prices in Asia?

This paper investigates the influence of international capital flows on housing prices in eight Asian countries, including China. We focus on determining whether exchange rate arrangements and capital regulations influence capital inflows and housing prices. Our results show that an arrangement to restrain the fluctuation of the exchange rate and capital controls has the potential to raise housing prices in Asia. The strong prospect of the Chinese yuan's appreciation also pushed up housing prices in China. Another expected reason for the increase in capital inflows into Asian markets is the expansion of global liquidity. Such capital flows often have a sensitive reaction to market sentiment, and an increase in asset market volatility caused by the liquidity squeeze decreases Asian housing prices. These results suggest the need to review capital controls and future exchange rate system options for Asian countries.     

How do Households Cope with Aggregate Shocks? Evidence from the Mexican Peso Crisis

Household surveys are used to examine the micro-impact of a large aggregate shock: the 1995 Mexican peso crisis. This paper examines how the impact of the crisis differed across households, and the adjustment mechanisms used by households to cope with this shock. The coping strategies examined include changes in household structure, fertility, household labor supply, child schooling, and interhousehold transfers. Many of the mechanisms households use to adapt to idiosyncratic shocks are found not to work with an aggregate shock.     

Marginal returns on Chinese agricultural technology transfer in Nigeria: Who benefits more?

Agricultural technology transfers are generally considered an effective means of solving persistently low yields in sub-Saharan Africa. This study assesses the impact of the Chinese agricultural training program on farmers' productivity and income using ex-post non-experimental data from Ogun State, Nigeria. Our empirical approach is based on marginal treatment effect models. We find that the returns for individuals who participated in Chinese agricultural technology training indicated a 68.5% increase in yield and a 45.3% increase in agricultural income. Furthermore, we show that the program targets farmers from advantaged backgrounds, who may benefit less from attending the program than disadvantaged farmers, who experience a lower incentive to participate. Finally, we suggest sufficient awareness and incentives to encourage highly resistant farmers to participate in such programmes.     

Asian Currency Baskets: An Answer in Search of a Question?

This paper considers whether an intra regional currency basket and the associated divergence indicators could play a useful role in official exchange rate surveillance. Recently, proponents of an Asian currency basket have referred to the role the European Currency Unit played in constructing exchange rate divergence indicators as evidence of the usefulness of intra regional currency baskets for exchange rate monitoring. The paper shows that such indicators have a number of features that can lead to them obscuring underlying changes in exchange rates and that the signals they emit will often be difficult to interpret. In addition, the use of regional currency baskets for surveillance can lead to potentially serious N − 1 problems in circumstances when there is not agreement about which regional currencies will be the anchor currencies.

Financing and monitoring in an emerging economy: Can investment efficiency be increased?

This study investigates the influence of the financial system on firms' investment efficiency in China. For this purpose, we employ country level data of capital markets and financial institutions along with financial data from 2797 Chinese firms in the period from 1998 to 2015. The firms are priori classified into four groups, by high and low values of financial constraints and agency problems. Results show that financial development influences firms' investments positively either directly or by reducing cash flow sensitivity. The impact remains the same for all types of firms. Moreover, the financial structure has an impact on investment efficiency of firms; this result also remains the same even after controlling levels of financial development. Study contributes that capital market based financial structure impacts investment decisions by reducing financing constraints and agency issue due to its strong monitoring ability.     

Copying with China''''s Balance of Payments Surplus: Why and How?

I. Continuous Increase of Balance of Payments SurplusAttributed to a series of domestic economic reform and structural adjustment, China hasexperienced a rapid increase of export and FDI inflows since the mid of 1990s. As a result,either its current account or capital and financial account1 has been increasingly characterizedwith surplus, leading to a rapid accumulation of foreign exchange reserves. Since thebeginning of 2001, such a trend has accelerated and the foreign exchange reserves …     

How do firms respond to minimum wage regulation in China? Evidence from Chinese private firms

To study how firms respond to minimum wage regulation in China, this paper empirically explores a number of dimensions along which firms adjust in response to minimum wage differences, using three waves of a national survey of Chinese private firms. Consistent with the predictions of economic theory, we find that private firms in China respond to minimum wage increases by cutting various fringe benefits such as pension and insurance, and by laying off low-skilled workers and short-term workers. Despite these adjustments, firms cannot fully mitigate the detrimental effects on firm profitability when faced with adverse demand shocks because of the wage rigidity introduced by minimum wage regulation. These findings highlight the unintended consequences of minimum wage regulation on the private sector in China.     

Pandemic and insurance purchase: How do people respond to unprecedented risk and uncertainty?

We investigate how people insure themselves against an upsurge of risk and uncertainty during a pandemic. Using high-frequency, city-level insurance purchases data from the largest online insurance platform in China, we employ difference-in-differences strategies to quantify changes in insurance purchases before and after the COVID-19 outbreak relative to a corresponding period in 2019. We show that the pandemic induces a substantial increase in daily number of insurance purchase, with evident impact on both health and life insurance. We demonstrate that the increase mainly originates from an expanded number of consumers; and is not driven by compositional shifts. Particularly, we show that the observed increase is better explained by pandemic risk exposure than other mechanisms such as negative emotions and insurance awareness. Nevertheless, there is a notable discrepancy between changes in insurance purchases and COVID-19 risk exposure, which is driven by individuals' lack of information on pandemic. We find that the more direct and high-quality information people have, the more likely their decisions are to accord with the objective risk exposure. These findings reveal the key driving forces of the risk management responses under an unprecedented pandemic, and point to the importance and necessity of public information disclosure.     

Differences in returns to FDI between China's coast and interior: One country,two economies?

In principle, returns to factors of production within single economic systems should exhibit relatively uniform returns. Notwithstanding the fact that over the past 30 years China's economy has increasingly liberalized both internally and externally, it is widely understood that wages received by industrial workers in the coast and interior have widely diverged. However, less is known about how, between China's coast and interior, relative returns to domestic capital and foreign investment have fared, although we do know that the surge of foreign direct investment in China in recent decades has been overwhelmingly concentrated in the coastal region. This paper investigates comparative factor returns within China's industrial sector as measured by the marginal productivities of labor, domestic capital, and foreign capital. Using balanced and unbalanced samples of enterprise data during 1998–2004, we find significant differences between the returns to each of these factors. This paper explores the differences in estimates of factor returns that arise from the use of balanced versus unbalanced samples and least squares versus fixed effects estimators. We conclude that while returns to labor and domestic capital are higher in China's coastal economy, returns to foreign-owned capital are higher in the interior region. Indeed, the differences are indicative of those found in the literature that estimates cross-country comparisons between OECD and developing economies, suggesting that China's economy exhibits some of the differences found between the world's more and less developed economies.     

Informal potato seed systems in the Andes: Why are they important and what should we do with them?

In Bolivia, Peru and Ecuador informal potato seed systems are much more important than formal systems. National seed projects recognize complementarities between the two systems and are seeking to link them. Arguments used to underpin linkages are assessed in the light of available evidence and accepted with some reservations. Project strategies have ranged from seed injection with minimum intervention to extensive reform ofthe informal system. All of the projects have met with some success. A number of general lessons are drawn for trapping the potential of informal seed systems.     

Pass-on trade: why do firms simultaneously engage in two-way trade in the same varieties?

This paper documents that a large fraction of trade flows at the firm level consists of simultaneous imports and exports in identical products, narrowly defined at the 8-digit product classification, which we call pass-on trade (POT). We use data on imports and exports at the firm and product level for Slovenian manufacturing firms in the period 1994–2008, to show that, on average, 70 % of all exporting firms engage in POT. This corresponds to more than 50 % of all exported products. Thus, imported products that are exported again by the same firm is a statistical regularity of trade of Slovenian manufacturing firms. We document that the use of POT is increasing in firm size, product diversification, multinational status as well as firm productivity and profitability. We offer and explore empirically a number of explanations for POT. Among possible explanations, we find evidence on the importance of firms’ multinational networks and demand complementarities between firms’ own and POT products. The latter confirms the theoretical explanations for carry-along trade (CAT) as developed by the recent work of Bernard et al. (2012).     

Exchange rates in the modern floating era: what do we really know?

Forecasting nominal exchange rates remains a remarkably difficult task, despite the proliferation of new floating currencies, the maturation of the floating rate period, the deepening of financial markets, and the development of more sophisticated econometric tests that make use of today’s more powerful computing possibilities. Despite these advances, the basic results of Meese and Rogoff in the 1980s stand up remarkably well—it is still extremely difficult to forecast exchange rates. To the extent that there is any forecasting power, the most promising models are those based on purchasing power parity or the current account, although it must be noted that these mainly predict the real exchange rate, rather than the nominal exchange rate. Thus, some of the adjustment takes place in prices. Finally, it should be noted that panel methods help in exchange rate forecasting, albeit mainly by allowing better estimation of nonstructural factors such as shift parameters.