Building ‘mass’ and ‘momentum’ – a latecomer country’s passage to large technological systems – the case of China

This paper focuses on how a latecomer country can bring a large (infrastructural) technological system (LTS) to a market already dominated by the entrenched systems of global technology leaders. We construct a conceptual framework, building on Hughes LTS theory (1983) and insights from social studies of technology into the specificities of infrastructural sociotechnical systems to analyse the development of China’s 3rd Generation mobile telephony system. We explore the complex dynamics surrounding the distributed governance of innovation, highlighting changes in key system builders. We note the role of the state in addressing critical problems (‘reverse salients’), both in terms of aligning players through legitimating and sense-making and also, building the necessary mass and momentum. This includes a more radical reconfiguring of the field to secure the substantial commitments needed to materialise and embed a new LTS infrastructure.     

Assessing the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation

The combination of a high growth rate and low information has been observed since the late 1990s in the Chinese economy. Should the fact be considered as a result of greatly improved supply capability or should the fact reflect the improvement in the government’s aggregate demand management? In this paper, we try to assess the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation. We use a bivariate structural VAR model to investigate macroeconomic dynamics for China within the aggregate-demand and aggregate-supply framework, using the quarterly data in the period of 1996Q1–2005Q4. Our principal findings are following: (1) China’s high growth shall be associated more with greatly improved supply capability, especially after its WTO entrance. The expansionary aggregate demand policies may have limited effects to raise the growth rate in the post-1996 in China. This result suggests that we need a more pro-growth policy stance in order to maintain a high and stable growth. (2) The low inflation in that period is driven primarily by weak aggregate demand rather than supply factors.     

Media’s role in the making of a democrat: Evidence from East Germany

This paper explores the causal influence of media content on voting behavior. We exploit a natural experiment involving access to West German TV within the German Democratic Republic. Focusing on federal and state election outcomes in the post-reunification decade (i.e., a time at which TV content was harmonized), we find that municipalities that had access to Western TV broadcasts before reunification have lower vote shares for left-wing and right-wing extremist parties. With regard to potential channels, we provide evidence based on survey data that GDR citizens with access to West German TV were less loyal to the socialist regime, less hostile toward foreigners, and exhibited higher levels of social capital. Our findings thus support the notion that access to free media influences political attitudes and facilitates the consolidation of democracy.     

The role of price risk in China’s agricultural and fisheries exports to the US

This article explores the effect of price risk on the US importers’ optimal allocation of agriculture imports between the major supplier, China, and other competing countries. We first modify a demand system to account for the impacts of own-price risk and cross-price risk, and then apply the model to 16 agricultural and fisheries commodities exported to the US. The estimation results show that importers are sensitive to price risks of 14 Chinese commodities. Comparisons between price risk–trade relations of agricultural and fisheries products and between trade effects of cross-price risk on Chinese goods and substitutes provide strong evidence for explaining the observed trade patterns. Our study highlights the importance of price stability in promoting international trade, especially from developing countries to developed countries.     

The role of China’s household registration system in the urban-rural income differential

Together with the rapid growth of the Chinese economy, there has been a growing divide between the earnings of urban and rural residents. This paper focuses on China’s household registration system, or ‘hukou’, as a potential source of the earnings gap. Using multiple waves of data from the China Health and Nutrition Survey from 1993 to 2011, we take advantage of variation in hukou status generated by individual-level changes. We control for fixed individual-specific characteristics that determine earnings and estimate an urban hukou ‘premium’. Urban hukou holders earn almost 30% more than rural hukou holders, but after we account for individual fixed characteristics, the urban hukou premium drops to 6–8%. We also find important differences between men and women. The empirical evidence indicates the hukou system is a component of the urban-rural earnings differential, but its importance should not be overstated. The elimination of the hukou system alone cannot address long-standing inequities in access to social services between rural and urban populations.     

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.     

China’s competition and the export price strategies of developed countries

This paper analyzes the impact of Chinese competition on developed countries’ export prices. The empirical application is on Italy, one of the main European manufacturing exporters with exports at high risk of competition from China. Our results show that, following China’s entry into the WTO, the price strategies of Italian firms has been affected. While in general the increasing Chinese export competition resulted in an upgrading of products exported, the impact has been different according to the sector and technological level. The incentives to upgrade have been stronger for low technology sectors, where competition is tougher and varieties of products sold lower. To highlight quality differentials, and isolate the effects on the different segments of the distribution of Italy’s export prices, we run quantile regressions. We find that are mainly those products sold at low prices to face a strong pressure to upgrade.     

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.     

Determinants of the global and regional CO2 emissions: What causes what and where?

Using the Stochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT) model and an unbalanced panel dataset of 128 countries covering 1990–2014, this study aims to examine the key impact factors (KIFs) of the global and regional carbon dioxide (CO₂) emissions and analyse the effectiveness of non-renewable and renewable energies. Given the potential cross-sectional dependence and slope heterogeneity, a series of econometric techniques allowing for cross-sectional dependence and slope heterogeneity is applied. The overall estimations imply that the KIFs at the global level are economic growth, followed by population size, non-renewable energy, and energy intensity in order of their impacts on CO₂ emissions; conversely, the KIFs at the regional level vary across different regions and estimators. The results also suggest that renewable energy can lead to a decline in CO₂ emissions at the global level. At the regional level, only for two regions (i.e., S. & Cent. America and Europe & Eurasia) renewable energy has a significant and negative effect on CO₂ emissions, which may be affected by the share of renewable energy consumption in the primary energy mix. Finally, the results indicate varied causality relationships among the variables across regions.

Abbreviations: AMG: Augmented mean group; BP: British Petroleum; BRICS: Brazil, Russia, India, China, and South Africa; CCEMG: Common correlated effects mean group; CD: Cross-section dependence; CIPS: Cross-sectionally augmented Im, Pesaran, and Shin; CO₂: Carbon dioxide; PS: Population size; D-H: Dumitrescu-Hurlin; EI: Energy intensity; EU: European Union; EU-5: Germany, France, Italy, Spain, and the United Kingdom; Europe & Eurasia, Europe and Eurasia; GDP: Gross domestic product; IEA: International Energy Agency; KIF: Key impact factor; LM: Lagrange multiplier; Mtoe, Million tonnes oil equivalent; NRE: Non-renewable energy; RE: Renewable energy; S. & Cent. America, South and Central America; STIRPAT: Stochastic Impacts by Regression on Population, Affluence, and Technology; VECM: Vector error correction model; WDI: World Development Indicators     

Political incentives and the effectiveness of monetary policy: evidence from China’s city commercial banks

From the perspective of official-and-director (OAD), this article takes studies of the effect of monetary policy on bank loans to the heterogeneity of bank. We explore how political incentives affect the lending channel of monetary policy transmission, using a sample of China’s city commercial banks during 2006–2014. And we further analyse the role of OAD’s characteristics, including administrative rank and age. The results indicate that although tight monetary policy can reduce bank loans, the OAD can weaken this relationship, and the higher is the administrative rank of OAD, the larger is the effect. And the older is OAD, the larger is the effect. More importantly, the relationship between monetary policy and bank loan is insignificant in banks with OAD, implying that the lending channel of monetary policy is absent when considering the role of OAD.     

China’s rural institutions and governance since the beginning of the rural reform

ABSTRACT

This paper looks at how China governs its vast rural territories. The structure of rural governance relies not only on the extent and form of the state’s authority, but also on the principal–agent relationship between the state and local stakeholders, as well as the role of the informal institutional arrangements that serve as the foundation for rural governance. China’s 40 years of reform and opening have led to the transformation of rural China into urban and rural China. The rules and order of informal institutions have evolved and changed significantly, and the cost-benefit structure of formal state governance has been amended. The appropriate rural governance system for village transformation improves the performance of the country’s direct governance and the entrustment–agent system for village governance. Further, the rural governance system balances formal and informal institutions to achieve an effective institutional arrangement.     

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.     

Hollowing out of the Real Economy: Evidence from China’s Listed Firms

The paper studies an often-observed phenomenon of diversification of manufacturing firms into real estate development in East Asian economies. Utilizing a sudden change in China’s accounting standards that requires firms to disclose information about their real estate holdings for investment purpose (or investment property), we examine both the impact of such diversification on firms’ investment in their original business and the stock market response to such diversification. Our results confirm there exists underinvestment in original business (or hollowing out of the real economy) for firms diversifying into real estate, and that there is a lack of investor response to such diversification, in both short-run and long-run. Our study calls for further research on the role of real estate development in the long-run competitiveness of developing economies.     

China’s efforts to contain Renminbi’s depreciation and the relating impacts

China began to face Renminbi (RMB) depreciation pressure since 2014Q2, and the 8/11 reform in 2015 exacerbated the RMB depreciation pressure against USD. To contain the depreciation pressure, the People’s Bank of China (PBC) adopted three methods. Firstly, PBC tried to stabilize the exchange rate by selling USD and purchasing RMB, which resulted in the fast shrinking of China’s foreign exchange reserve. Secondly, PBC strengthened the regulation of capital outflows, which caused the stagnation of RMB internationalization. Thirdly, PBC frequently changed the pricing mechanism of the daily fixing of RMB to USD, which led to the reverse of the liberalization of RMB exchange rate. Under the new environment of RMB depreciation pressure and much lower foreign exchange reserve, Chinese government changed its strategies and became more cautious and pragmatic in outward foreign direct investment, RMB internationalization, and Belt & Road Initiative construction.     

Value-added exports and the skill premium: Evidence from China’s international and regional production networks

The present study examines the impact of value-added exports on the skill premium in a large developing country. We distinguish two margins of value-added trade: direct exporting measures the economic activities of de jure exporters, while indirect exporting reflects the induced demand for suppliers for exporters. We integrate China’1s internal and external production networks and draw empirical evidence from both population and economic censuses. Our findings show that aggregate value-added export intensity is associated with a higher skill premium, but it encompasses two contrasting effects: the direct exporting channel increases the skill premium, whereas the indirect channel decreases it. The latter channel has been neglected in existing published studies, which can lead to an overestimation of the positive relationship between exports and inequality in the South. We discuss the possible mechanisms and important implications.     

On the nature and role of financial systems in Keynes’s entrepreneurial economies

In his debate with Bertil Ohlin, Keynes observed that entrepreneurs, when deciding to invest, have to be sure they will access the amount of finance necessary to initiate the investment process and that they will be able, when the time comes, to fund their debts in ways that are adequate to the profile of assets they are purchasing. In this statement, Keynes outlines the functions of financial systems in Entrepreneurial Economies, the type of economies he hypothesizes we live in. In entrepreneurial economies, investing firms have to be able to get hold of the necessary amount of means of payment required to purchase or order investment goods and to build balance sheets where in- and outflows of cash are broadly matched within reasonable margins of safety. This means that financial systems’ primary role in Keynesian economics is not to allocate savings or capital but to allocate liquidity and to allow investors to build liquid balance sheets. The article develops this proposition, presenting Keynes's basic concepts on the matter and showing how modern financial systems perform their role.     

Validity of sustainability framework for China’s mining cities – a structural equation modelling approach

Many studies developed their framework for sustainability through indicator systems, but the interactions and relationships within these indicators have not been studied yet. In this article, based on indicator systems, we use a sample of 78 mining cities in China and employ structural equation modelling (SEM) method to explore the validity of sustainability framework. Our empirical results show that resources abundance positively affects urbanization level significantly but negatively affects cleaner production level and environmental protection level significantly; economic strength positively affects urbanization level significantly; cleaner production level has a significant effect on economic strength and non-mineral resources conversion efficiency. We also find that when economic strength is low, resources abundance might weaken the positive effect of economy on urbanization.