An alternative method of measuring economic efficiency: The case of grain production in China

The objective of this paper is to suggest a simple method to gauge the economic efficiency of firms, when there are no reliable price data. Applying the suggested method on the recent Chinese farm-household survey data collected during 1993 and 1994, this study shows that majority of grain farmers in China are not producing at the optimum levels which yield maximum profits. The analysis also indicates that output can be increased by consolidating rather than further segmenting the operational area of grains.     

Understanding openness and productivity growth in China: An empirical study of the Chinese provinces

This paper investigates the effects of openness on China's regional productivity growth. We build a model of technology diffusion in which follower economies achieve productivity growth by taking advantage of technology spillovers from the world technology frontier. We hypothesize that China's regional productivity growth is a positive function of regional openness and a negative function of the current level of regional productivity. Empirical analysis in this paper focuses on how openness affects productivity growth in the Chinese provinces. We examine two effects of openness on regional productivity growth in China: the direct growth effect and the convergence effect. By using a variety of panel data regression techniques, we show that the direct growth effect of openness is the main effect while the convergence effect is insignificant. The findings of this paper lend strong support to the claim that the opening-up of China promotes the country's economic growth.     

Land fragmentation and farm productivity in China in the 1990s

The main objective of this study is to examine the effects of fragmentation on farm productivity in China and to discuss policy implications. Some earlier work has questioned the importance of the economic costs of land fragmentation in developing economies. It has been argued that policymakers should focus instead on reducing the root causes of fragmentation: inefficiencies in land, labour, credit, and food markets. Our results, using a more recent and larger dataset from a household survey in China, find that fragmentation does have an economic cost in China. Production functions are estimated for each of the major grain crops in the sample provinces. We also argue that to reduce the economic costs, land consolidation in China should be undertaken with less government intervention. More attention should be given to the establishment of markets for land (or land use rights) and improvements in rural credit and grain markets.     

Bayesian analysis of time-varying parameter vector autoregressive model for the Japanese economy and monetary policy

This paper analyzes the time-varying parameter vector autoregressive (TVP–VAR) model for the Japanese economy and monetary policy. The parameters are allowed to follow a random walk process and estimated using the Markov chain Monte Carlo method. The empirical result reveals the time-varying structure of the Japanese economy and monetary policy during the period from 1981 to 2008. The marginal likelihoods of the TVP–VAR model and other fixed parameter VAR models are estimated for model comparison. The estimated marginal likelihoods indicate that the TVP–VAR model best fits the Japanese economic data.     

Transactional activities and total factor productivity growth in Taiwan

Total factor productivity (TFP) growth shows how rapidly an economy is enhancing technology and the efficiency with which it allocates resources. It has been argued that “miraculous” growth in East Asian economies may not be sustainable, due to relatively low rates of TFP growth. Among these economies, it appears that Taiwan has indeed exhibited substantial technological progress. Failure to control for transactional activities, however, can distort the impression of TFP growth. This study recalculates Taiwan's TFP growth for the 1957–1993 sample period, adjusting for transaction costs in the government and private sectors. For the early years of the sample, 1957–1973, the economy's technological progress is better than GDP-based calculations suggest. In recent years, 1983–1993, productivity improvement has been overstated, but the economy has still exhibited relatively fast TFP growth.     

Are China's energy markets cointegrated?

The paper investigates energy price co-movement over the period 01/1999–12/2005 for China as a whole, and over sub-periods and for seven regions, using panel unit root and panel cointegration tests developed by Pedroni (1999, 2004). The results suggest that not all energy sources are spatially homogenous in prices and the processes of energy price cointegration are different over sub-periods; over groups of fuels; and over regions. Coal and electricity prices have co-moved since 2003 while gasoline and diesel prices have co-moved since 1997. The results show that there are clearly variations in the emergence of energy price co-movement over regions, implying that regional fuel markets have emerged in China. Important lessons that can be learnt from the results are that an energy market has, to some extent, already emerged in China and, as a result, energy prices are substantially less distorted than before. If correct, these findings have significant global implications both in terms of future emission reductions, emission trading and trade negotiations where China should be treated as a ‘market driven economy’.     

Migration constraints and development: Hukou and capital accumulation in China

Rural–urban migration flows are a crucial corollary of economic development. The adverse or beneficial effects of internal migration, for sending as well as receiving areas, and the definition of optimal migration policies, have remained much discussed issues since the seminal works of Harris and Todaro (1970). This debate is especially acute in China where the “household registration system” (hukou) acts as a strong constraint on individual migration. This paper aims to assess the consequences of hukou through a simple model of a developing dual economy with overlapping generations. Contrary to existing studies focused on the contemporaneous allocation of economic resources, it deals with the dynamic consequences of migration flows and migration policies. It shows that, in fairly general circumstances, hukou-related migration constraints can actually hasten development, understood as the transfer of the labor force to the modern sector, driven by capital accumulation. The hukou system could thus be one of the causes of the extremely high Chinese saving rate and of the high pace of Chinese development. Insights from the model are confronted with stylized facts from the Chinese development, and theoretical results are especially consistent with the effects of the 2001 “towns and small cities” reform.     

Building the dynamic linkages between R & D and productivity growth

This study attempts to integrate the dynamic and spillover characteristics of R & D into the explanation of total factor productivity growth. To characterize the dynamic feature of R & D, the dynamic growth model is reformulated to explicitly consider the contribution of R & D. The two different types of spillover effects are characterized as one that can be used directly and the other that needs to be assimilated by firms' own investment. Empirical application of the theoretical methodology facilitates investigating factors contributing to the growth of the manufacturing sector in Taiwan over the period 1980–1991. It is found that the scale-related components have a dominant contribution in the growth of total factor productivity contributing approximately 95.3% of the growth. Although the spillover effect is quite insignificant, accumulation of R & D capital contributes nearly half of the residual growth of the manufacturing sector.     

Do Chinese farmers reinvest in grain production?

Grain production is affected by the relocation of farm household labour from on-farm to off-farm activities and by an increase in the investment in grain production as a result of increase in farm household income that occurs along with such a labour shift. This study uses a recent farm household survey data to examine whether Chinese grain households do reinvest in grain production. It has found that household income growth contributes to higher investment in grain production although a higher share of non-agricultural income has a negative effect. The authors' other research has found a negligible direct impact of farm to non-farm labour transfer on grain production. We may conclude that in the near future, the total impact (direct and indirect) of labour transfer from farm to non-farm production on grain output is expected to be positive. In the long run, in may become negative when more and more labour shifts out of grain production and marginal product of labour becomes positive.     

Uncertainty and housing tenure choice by household types: Evidence from China

In this paper, we propose an uncertainty-preference-housing choice model and empirically investigate the effect of uncertainty on the probability of homeownership using microdata from Chinese cities. Introducing several measures of uncertainty, we observe that after the reform of the housing distribution system, unemployment uncertainty negatively affects the housing tenure choices of high-income families, whereas educational expenditure uncertainty has a negative effect on the homeownership rates of low-income families. We also find that unemployment uncertainty negatively affects the housing choices of local families and that medical expenditure uncertainty has a negative effect on housing choice for migrant families. Finally, an increase in unemployment uncertainty decreases the homeownership rate among families in which the head of household did not experience the change in enterprise ownership.     

Rural to urban land conversion in China — How large is the over-conversion and what are its welfare implications?

The current system of converting farmland to urban land use in China can be characterized as a hybrid system that combines government controls with market-based transfers. In this paper we argue that this hybrid governance structure causes an over-conversion of farmland from the rural to the urban sector, as compared to a competitive market situation, and a welfare reallocation that discriminates against farmland owners. We develop a partial equilibrium model that can be used to examine the impact of the current hybrid governance structure on the over-conversion of farmland and to analyze the welfare changes for different groups of actors and the resulting net social welfare loss. Using a dataset with detailed information on farmland acquisitions and urban land transactions in Yingtan City in Jiangxi Province, we illustrate how this framework can be applied. Our results indicate an over-conversion of 33.5% of the total converted farmland in this city between 1999 and 2003. The welfare of farmland owners affected by the conversion decreased by 1.38 billion RMB, while the net social welfare loss equaled more than 270 million RMB during the same period. The local government obtained 380 million RMB of revenues by re-selling farmland as urban land through competitive conveyance mechanisms between 2002 and 2005, while the manufacturing sector gained an estimated 280 million RMB from buying land use rights at relatively low prices. We conclude that the current policy of increasing urban land conveyance through competitive mechanisms does not address two major underlying causes of over-conversion, and that protection of farmland would be better served by replacing the current hybrid rural to urban land market structure by a competitive land market.     

Agricultural institutions, industrialization and growth: The case of New Zealand and Uruguay in 1870–1940

In this paper we apply a model of early industrialization to the case of New Zealand and Uruguay in 1870–1940. We show how differences in agricultural institutions may have produced different development paths in two countries which were similar under many respects. While in New Zealand the active role of the Crown in regulating the land market facilitated access to land, in Uruguay land was seized by a small group of large landowners. Our model shows that land concentration may have negatively influenced industrialization and growth by impeding the formation of a large group of middle-income landowners and, as a consequence, the development of a domestic demand for basic manufactures. We support this view with a comparative analysis of agricultural institutions and industrial development in New Zealand and Uruguay.     

An empirical study on the hysteresis of currency substitution in Cambodia

This paper examines whether the currency substitution (CS) phenomenon in Cambodia is in a hysteresis state. We employ a simple model of money-in-the-utility function with two currencies (home and foreign), in which the effect of network externalities on the use of foreign currency is taken into account. The equation derived from the model is estimated using the autoregressive distributed lag approach to cointegration for the period from June 1993 to June 2009. Our estimation results indicate that (1) there exists a stable, long-run relationship among the variables considered, (2) the CS ratio increases when people expect a higher rate of depreciation in the exchange rate, and most importantly, (3) there is evidence supporting the existence of a network externality, thereby implying the hysteresis of the CS phenomenon in Cambodia. Given the characteristics of the CS process in Cambodia, any measure or policy option to bring down the CS degree must be carefully considered.     

Money demand in China and time-varying cointegration

Many studies analyze the money demand using a (fixed coefficient) cointegrating regression model, which may not be appropriate to deal with the money demand of a transition economy like China. This paper investigates this issue using a time-varying cointegration approach based on the quarterly data from 1996 to 2009. We find some interesting results: (i) the estimates of the income elasticities are between 0.60 and 0.75, which are comparable with the previous studies; (ii) the estimated interest rate elasticity supports the argument that the overall effect of the interest rate on the money holding is weak although there are some mild evidences that it has been strengthened in recent years; (iii) the substitution effect of equity asset dominates the wealth effect, especially, during the bullish market period. Our result is robust to the alternative choices of the scale or opportunity cost variables and shows that omission of the stock prices in the money demand function would possibly yield a misspecification problem.     

An Empirical Analysis of Provincial Productivity in China (1979–2001)

This study estimates and analyzes provincial productivity growth in China for the period 1979–2001. The Malmquist Index approach allows us to decompose productivity growth into two components, technological progress and efficiency change. Considerable productivity growth was found for most of the data period, but it was accomplished mainly through technological progress rather than efficiency improvement. Although China's capital stock has accumulated at record speed in recent years, our findings show that TFP growth slowed down significantly during 1995–2001. The study thus raises serious questions about whether China's recent growth pattern is consistent with its comparative advantages, and whether its reliance on capital accumulation can be sustained in the long run.     

The direct impact of the relocation of farm labour on Chinese grain production

The shift from collective to household-based farming and the move towards a market economy have increased the opportunity cost of grain production and caused a withdrawal of labour from grain farming in China. Since Chinese grain production is important to both China and the world, there are concerns about whether such a farm labour relocation will have a destructive impact on China's grain production. The previous production function studies ignored the effects of changes in labour quantity and quality on grain production. Using recently available sample survey data on Chinese farm households, this paper incorporates production function analysis with human capital analysis to examine the direct impact of the relocation of farm labour on China's grain production. It has found that the relocation of farm labour has not harmed the Chinese grain production in general, but its impact varies across regions with different factor endowments that affect the choice of farming technology.     

A multidimensional analysis of poverty in China from 1991 to 2006

Most studies have reported non negligible improvements for China in terms of poverty during the last three decades. However, this result is potentially hampered by two limitations. First, it may be contingent to the specific choices made regarding the poverty line and the poverty indices used for the analysis. As a consequence, it may collapse if one uses alternative poverty lines or poverty measures. Second, it results from a focus on the sole monetary aspects of poverty. As income does not cover all facets of well-being and since the relationship between these two concepts are quite fuzzy, it may be worth using a broader view of well-being, hence opting for a multidimensional approach of poverty analysis. In the present paper, these two issues are addressed using multidimensional stochastic dominance procedures on the joint distribution of income, education and health in seven Chinese provinces.     

The impact of agricultural technology adoption on income inequality in rural China: Evidence from southern Yunnan Province

This study analyzes the impact on income inequality of government efforts to increase agricultural incomes in rural China. It collects and analyzes survey data from 473 households in Yunnan, China in 2004. In particular, it investigates the effects of government efforts to promote improved upland rice technologies. Our analysis shows that farmers who adopted these technologies had incomes approximately 15% higher than non-adopters. Despite this relatively large increase, we estimate that the impact on income inequality was relatively slight. This is primarily due to the fact that lower-income farmers adopted the improved rice technology at rates that were roughly equivalent to those of higher-income farmers.     

Does off-farm employment contribute to agriculture-based environmental pollution? New insights from a village-level analysis in Jiangxi Province, China

This study examines the conventional wisdom that off-farm employment contributes to environmental pollution by increasing the use of agro-chemicals. In order to analyse the role of household decision making and village factor markets in more detail, we run simulations with a hybrid farm household/village computable general equilibrium model that is applied to a village in Northeast Jiangxi Province. We find that the negative lost-labour effect of off-farm employment on agricultural incomes is much stronger than the (small) positive income effect. As a result of reduced labour resources and increased leisure consumption, farm households reduce the intensity of rice cultivation as well as the production of (especially) cash crops. The shift in production activities is stronger for migration than for off-farm employment, because migrants cannot combine off-farm work with onfarm work, and because migration reduces the village market price of oxen services. The shift towards less intensive rice production means that off-farm employment (and migration in particular) reduces the levels of chemical inputs and manure used in agricultural production. The decline in fertilizer input is much larger than the decline in manure use, because manure is a nontradable commodity and is applied only once per year. We therefore conclude that migration and, to a lesser extent, local off-farm employment lead to lower incomes from agricultural production, but have benign effects on environmental quality.