Economic transition and the determinants of self-employment in urban China: 2007–2013

Abstract

Why was there a large growth in self-employment in urban China during the economic transition period? There are two hypotheses proposed to answer this: the disguised unemployment hypothesis that there is no opportunity to access the formal sector to gain better work, and the business creation hypothesis that successful business owners create new jobs for others, new business opportunities, and many innovative new products for society, as pointed out in previous studies. Using CHIP2007 and CHIP2013, this paper tests the two hypotheses. The main conclusions are as follows: First, generally, utilizing the imputed wage premiums, which were used in previous studies, the business creation hypothesis is rejected; the disguised unemployment hypothesis is supported for both the local urban resident and the migrant groups in 2007 and 2013. Second, the results that utilized the new wage premiums based on the imputed employee wages in the private sector show that the business creation hypothesis is supported when a worker chose to become an employer for both the migrant group and the local urban resident group in 2013. Third, the business creation hypothesis is relevant for the older generation group of local urban residents in 2013.     

Balance sheet expansion and economic growth in China: Crowd in or crowd out?

Balance sheet expansion is crucial to understand the historic path, current slowdown and future trend of economic growth in China. As the financial system transforms national savings into investment, balance sheet expands simultaneously. According to changing impacts of balance sheet expansion on real economy, economic growth in China from 1998 to 2016 can be divided into the crowd-in stage and the crowd-out stage. In the first stage (1998–2007), balance sheet expansion crowded China's real economy in, raised TFP dramatically and accelerated economic growth. In the second stage (2008–2016), balance sheet expansion crowded China's real economy out, with stagnant TFP and decelerated economic growth. Balance sheet expansion has slowed down since 2014, but it continues to exert crowding out effects on China's real economy. We argue that balance sheet expansion is crucial for China's future economic growth. In the long term, structural reforms, especially reforms in the financial system, could increase growth potential significantly. In the short term, financial system reforms should focus on generating sufficient cash flows to boost aggregate demand.     

The changing role of agriculture with economic structural change – The case of China

We analyze the implication of structural change to the evolving role of agriculture using China as an example. By combining a growth decomposition exercise with Input-Output (IO) and CGE model analyses using China's seven input-output tables (IOTs) in 1987–2017, the evolving role of the agriculture is quantitatively measured. The growth decomposition analysis shows that between 1978 and 2017, China doubled the size of its total labor force, while the absolute number of agricultural workers falls in this period. Rising labor productivity in agriculture has led to rapid agricultural growth without increasing agricultural employment, allowing agriculture to indirectly contribute to the economywide productivity growth through structural change.The measurement of economic integration using an IO approach helps to explain why China's rapid structural change has been accompanied by similar rapid productivity growth within each sector. The general equilibrium effect of structural change on the evolving role of agriculture is further assessed using two CGE models representing the initial (1987) and end (2017) years of a period of 30 years. Similar agricultural productivity shock induces a smaller economywide gain in 2017 than in 1987 in the CGE models, while the gap in the general equilibrium gain between these two years is much smaller than the difference in agriculture's size of the economy in the two years because of stronger linkages between agriculture and the rest of the economy in 2017. About 0.5 unit additional nonagricultural value-added is associated with a unit agricultural value-added increase in 1987, while additional gains in nonagricultural value-added rise to 2.7 unit in 2017.Our analysis of economic integration and implication of structural change to the evolving role of agriculture emphasizes the supply side role for sustainable growth in which agriculture continues to play an important but different role from the past when the demand side effects were stronger. Policies to strengthen supply side linkages have been emphasized in the recent years in China. Exploring further integration between agriculture and the rest of the economy should be part of the new growth strategy.     

The impact of tariff reductions on firm dynamics and productivity in China: Does market-oriented transition matter?

This paper investigates the impact of trade liberalization on firm dynamics and productivity in the context of dramatic tariff reductions after China's accession to the WTO, and how this impact varies across regions with different marketization levels. Our results show that (a) on average, output tariff reductions tend to reduce firm entry rate and increase firm exit rate, while input tariff reductions help to increase both firm entry rate and exit rate, furthermore, regional marketization strengthens the impact of trade liberalization on firm dynamics; (b) trade liberalization exerts greater impact on the likelihood of exit for the least productive firms while it tends to reduce the probability of exit for the more productive firms, with regional marketization strengthening such a reallocation process of trade liberalization; (c) firm dynamics effect contributes approximately 43% of the growth of productivity, and it (especially the firm exit effect) is an important channel through which trade liberalization fosters productivity growth, and domestic market reform is found to strengthen such an impact.     

Globalization and economic inequality in the short and long run: The case of South Korea 1975–1995

We analyse the determinants of the Gini coefficient for income and expenditure in South Korea between 1975 and 1995. In both cases, we do not find support for the Kuznets inverted-U hypothesis. From an economic globalization viewpoint, the opening of goods markets reduces income inequality in both the short run (the Gini coefficient for income) and the long run (the Gini coefficient for expenditure). On the other hand, the opening of capital markets increases income inequality in both the short and the long run, although the latter is not statistically significant. These results suggest that the effect of economic globalization on income inequality has two routes and two different speeds.     

The determinants of increasing equity market comovement: economic or financial integration?

This paper investigates to what extent the substantial increase in exposures of local European equity market returns to global shocks is mainly due to a convergence in cash flows (“economic integration”), to a convergence in discount rates (“financial integration”), or to both. We find that this increased exposure is nearly entirely due to increasing discount-rate betas. This finding is robust to alternative ways of calculating discount-rate and cash-flow shocks.     

The role of infrastructure in China’s regional economic growth

This study investigates the relationship between infrastructure capital and China's regional economic growth for the period 1990–2013. Four types of infrastructure are considered: electricity generating capacity, roadway, railway, and telecommunications. Using a vector error correction model, we find mixed support across time period and region for the contribution of infrastructure investment to economic development. With regard to road construction in lagging regions in particular, the impact appears to have become negative under a program of ramped up efforts. The results resonate with the theoretical literature on the inverse U-shaped relationship between infrastructure investment and growth which posits a “crowding-out effect” of private capital when infrastructure investment becomes too dominant.     

The economic consequences of China–Africa relations: debunking myths in the debate

This study dissects with great acuteness some of the big questions on China–Africa relations in order to debunk burgeoning myths surrounding the nexus. It reviews a wealth of recent literature and presents the debate in three schools of thought. No substantial empirical evidence is found to back up sinister prophesies of coming catastrophe from critics of the direction of China–Africa relations. In the mean, the relationship from an economic standpoint is promising and encouraging but more needs to be done regarding multilateral relations, improvement of institutions, and sustainability of resources management. A number of positive signs suggest that China is heading toward the direction which would provide openings for a multipolar dialog. While benefiting in the short run, African governments have the capacity to tailor this relationship and address some socio-economic matters arising that may negatively affect the nexus in the long term. Policy implications are discussed.     

Unions and firm innovation in China: Synergy or strife?

The ‘monopoly face’ of unions suggests that the rent-seeking activities of unions discourage research and development investment and that the collective bargaining rules may restrict management flexibility, thus deterring innovations. On the other hand, the arrival of unions in the workplace may ‘shock’ the management into adopting more systematic rather than ad hoc management practices and that such innovative workplace practices may enhance an organization's ability to introduce new products and/or new processes. Further, the ‘voice face’ of unions argues that the independent ‘questioning’ of the management deliberations by the unions can also lead to better, more creative and, hence, more productive solutions. This paper investigates the link between unions and firm innovations in China. Different from their counterparts in advanced economies, Chinese unions are found to encourage firm innovations and R&D investment.     

The mobility of top earnings,income, and wealth in China: Facts from the 2011–2017 China household finance survey

We document rich facts of the intra-generational mobility of households in the top fractiles of earnings, income, and wealth distributions in China using the panel data of the 2011–2017 China Household Finance Survey. We find high mobility co-exists with high inequalities within various top fractile groups. In specific, persistence rates of the top 1% group implied an inverted-U pattern for top earnings mobility, a declined trend of top income mobility, and an improved trend for top wealth mobility during the study period. Although the overall trends of mobility for top earnings, income, and wealth showed diverse patterns, they are still considered high from global comparisons. Besides, the top 1% households generate significantly more income from business and allocate a higher fraction of their assets to private equity.     

A case study in German economic imperialism: The colonial economic committee, 1896–1914

Abstract

The most thorough attempt so far made to estimate the population of Finland in the 17th century is that by the Swedish military historian, Major S. Sundquist. The purpose of his investigation was to discover the basis of enlistment in the army of the kingdom of Sweden under Gustavus II Adolphus. Sundquist obtained the number of farmsteads from the Crown terriers of the first decade of the 17th century and from lists drawn up in connexion with a levy raised to buy back the castle of Elfsborg lost to Denmark in the war of 1611–1613. His next step was to assess the average size of households. In source materials from the sheriffdoms (fögderier) of Porvoo (Borgå) and Kymi (Kymmene) an assessment term, näbb, was found. Sundquist interpreted this term as indicating the number of married couples living in a farm household in addition to the farmer and his wife. In the two sheriffdoms mentioned, the number of such additional couples was 1.14 per farmstead. Sundquist changed this ratio into the round figure of one which he applied to the whole country, thus assuming a national average of two married couples per farm. Assuming, furthermore, that the population structure was the same in the 17th century as in the late 18th and early 19th centuries, when the earliest official population statistics were drawn up, he assumed for each married couple the same number of widows and widowers, unmarried adults and children as appeared in these statistics. In this way he arrived at a ‘probable minimum’ of 350,000 persons; he also calculated a ‘proved minimum’ of 219,000 by assuming that the average number of married couples per farmstead was 2.14 in the sheriffdorns of Porvoo and Kymi but only 1.0 in the rest of Finland. ¹ S. Sundquist, Finlands folkmängd och bebyggelse i början av 1600-talet [Finland's population and colonization at the beginning of the 17th century], Meddelanden Iran generalstabens krigshistoriska avdelning II, Stockholm.      

The Post‐Mao economic reform in China: A Korean view

Abstract

Previous studies that were concerned with the impact of depreciation of the ringgit on the Malaysian trade balance employed data either between Malaysia and rest of the world or between Malaysia and each of her major trading partners. Specifically, the bilateral trade balance between Malaysia and the US is shown to be insensitive to the real bilateral ringgit–dollar rate. In this article we wonder if disaggregating trade flows between Malaysia and the US by commodity could help us to discover any significant effects that the real exchange rate could have. We consider 101 industries that export from US to Malaysia and 17 industries that import from Malaysia. While majority of the industries showed short-run sensitivity to the real bilateral exchange rate, short-run effects lasted into the long run almost in half of the industries in both group.     

Wage growth and inequality in urban China: 1988–2013

We investigate the evolution of wage levels, wage inequality, and wage determinants among urban residents in China using China Household Income Project data from 1988, 1995, 2002, 2007, and 2013.Average wage grew impressively between each pair of years. Wage inequality had long been on the increase, but between 2007 and 2013 no clear changes occurred. In 1988, age and wages were positively related throughout working life, but more recently older workers' wages have been lower than those of middle-aged workers. The relationship between education and wages was weak in 1988 but strengthened rapidly thereafter—a process that came to a halt in 2007.During the period in which China was a planned economy the gender wage gap was small in urban China, but it widened rapidly between 1995 and 2007. We also report the existence of a premium for being employed in a foreign-owned firm or in the state sector.     

From financial repression to financial crisis? The case of China

This study explores the connections between financial repression policies and the possibility of financial crisis, a relationship that has been overlooked in previous literature. We focus on China, a country with one of the highest levels of financial repression in the world. China's case shows that when financial repression is maintained at a modest level, as the government did before 2008, the possibility of a financial crisis is low; however, when financial repression policies are pushed to an excessive level, as the government did after 2008, the national asset‐liability structure may be damaged to such an extent that a financial crisis becomes likely. The key to understanding the changing role of China's financial repression policies lies in the survival strategy of the Chinese party‐state, which regards finance as a powerful weapon and is eager to use it to address certain economic, political, or social problems that may endanger its rule.     

Belt and road: The China dream?

This paper explores the impact of the Belt and Road Initiative (BRI), in terms of changes in trade costs on trade and consumer welfare in China, the EU, and the rest of the World. We employ a general equilibrium structural gravity approach and conduct a counterfactual analysis. Our key findings are as follows: (i) China and the EU are expected to make substantial gains from the BRI due to reductions in transport costs; (ii) signing and implementing a deep FTA between China and the EU is equivalent to transport cost reductions of 15–20%; (iii) the joint policy of the BRI and FTA is super-additive, magnifying the gains from the separate policies; and (iv) where transport cost reductions are 20% or more, the potential negative effect of the China-US trade war on China is more than compensated for by the BRI initiative. Our results provide evidence that the BRI has the potential to deliver significant welfare gains, particularly if combined with other trade integration schemes, and to counterbalance aggressive trade policies.     

Does health insurance decrease health expenditure risk in developing countries? The case of China

This article studies the impact of health insurance on individual out‐of‐pocket health expenditures in China. Using China Health and Nutrition Survey data between 1991 and 2006, we apply two‐part and sample selection models to address issues caused by censored data and selection on unobservables. We find that, although the probability of accessing health care increases with the availability of health insurance, the level of out‐of‐pocket health expenditure decreases. Our results from a selection model with instrumental variables suggest that having health insurance reduces the expected out‐of‐pocket health expenditure of an individual by 29.42% unconditionally. Meanwhile, conditional on being subjected to positive health expenditure, health insurance helps reduce out‐of‐pocket spending by 44.38%. This beneficial effect of health insurance weakens over time, which may be attributable to increases in the coinsurance rates of health insurances in China.     

The paradox of developing agricultural mechanization services in China: Supporting or kicking out smallholder farmers?

Developing agricultural mechanization services (AMS) is commonly regarded as an important step in the modernization of smallholder farmers in China. However, given the increase in the opportunity costs of agriculture and the high cost of AMS, further study is needed to determine the relationship between AMS and smallholder farmers' exit from agricultural production. In this paper, data from the China Family Panel Survey collected in 2017 and 2019 are used to investigate this issue. Our findings show that the development of AMS reduces the probability that smallholder farmers exit from agricultural production though land abandonment, but increases the probability through land renting-out. Further analysis shows that with the emergence of large farm operators and the increase in land size rented by large farm operators, the development of AMS induces smallholder farmers' exit from agricultural production through both land abandonment and land renting-out. We also find that AMS can increase the market demand for land transfers and the marketization of land rentals, and as land markets develop, AMS induce smallholder farmers' exit through the abandonment of fragmented and distant land plots.     

Job creation or job relocation? Identifying the impact of China's special economic zones on local employment and industrial agglomeration

Since the early 1980s, special economic zones (SEZs) in China have benefited from targeted place-based policies intended to promote local employment and economic growth. What remain poorly understood is whether SEZs serve to give birth to new firms, or rather attract and support the re-establishment of firms from other places. To address this question, this paper examines the impact of SEZs on employment growth in rural counties in China. Using ASIF panel data representing the activity of manufacturing firms for the period 1999 to 2008, this paper assesses the employment effects of SEZs according to firm births, relocation, expansion, and firm closure. By matching counties with future SEZs as comparison groups, the difference-in-differences estimates show that SEZs significantly increase employment in rural counties due to the creation of new firms and the expansion of existing large firms; in contrast, SEZs fail to promote firms to move in and restrain firms from moving out. Further, data analysis reveals significant regional heterogeneity, with the employment effects of SEZs on firm entry strongest for the eastern coastal region. Finally, we confirm that SEZs tend to reduce local industrial agglomeration in the eastern and central regions.     

Will remittances suppress or increase household income in the migrant-sending areas? Modeling the effects of remittances in rural China

There are ongoing debates about whether remittances suppress or increase household income in the migrant-sending areas. The literature has not explained the heterogeneous results in a unified framework. This paper proposes a new concept, remittance capitalization potential (RCP), to conceptualise the possible switch between suppression effect and incentivization effect of remittances in the migrant-sending areas. The theoretical model reveals that remittances suppress household income in the migrant-sending areas when the RCP level is below a certain threshold, while remittances help increase household income in the migrant-sending areas when the RCP level is above a certain threshold. Moreover, the factors that affect the RCP level, such as the level of household human capital, ultimately determine whether remittances exert suppression or incentivization effect in the migrant-sending areas. Using China Family Panel Studies (CFPS) data, this paper adopts the method of instrumental variables to estimate how the level of household human capital alters the effect of remittances on household income from agricultural production in rural China. The models show that in the households with the head agricultural producers who are illiterate or semi-literate, the remittances suppress the agricultural income significantly. In the households with the head agricultural producers who are literate, however, the impact of remittances on the agricultural income switch to be positive significantly. The robustness tests not only support the results from the base models, but also confirm that the level of household human capital works as an influencing factor of RCP and determines whether remittances suppress or increase household income in the migrant-sending areas.