The change in productivity of Chinese state enterprises, 1983–1987

This study estimates the change in productivity of Chinese state enterprises during 1983–1987 using a panel data set of 403 firms. A new approach to productivity measurement is used. Under this approach, the production functions can differ arbitrarily across firms, important given the heterogeneity of the sample. The resulting coefficients estimate the marginal products of each factor as well as overall productivity growth. The results suggest Chinese productivity increased by 4.6% per year, with about half of this growth due to the rapidly improving education of the labor force.     

The Transfer Problem and Real Exchange Rate Overshooting in Financial Crises: The Role of the Debt Servicing Multiplier*

We develop a real model of exchange rate overshooting due to a debt servicing multiplier. Borrowers of foreign capital are bound by noncontingent contracts to pay the world rate of return following an adverse shock. This is onerous, since the marginal product of capital is less than the world rate of return and the shock causes some capital to become extra‐marginal. If the resultant debt servicing shortfall is met by taxes on workers, this reduces their demand for nontradable goods, which feeds back onto their wage, reducing their demand for nontradable goods, etc. In the short run, when extra‐marginal projects are “stuck” in the economy, the real exchange rate can overshoot. This mechanism may help to explain overshooting of exchange rates in the 1997 Asian financial crisis.     

The optimal linear alternative to price and quantity controls in the multifirm case

Linear control schedules in output have been shown superior in the one-firm case to either of the extreme controls—price or quantity; they optimally trade off the desirable characteristics of both extremes. When many firms are regulated, however, that superiority fades. Then total output affects expected benefits and can display a larger (or smaller) variance than the sum of individual firms' output variances (upon which expected costs depend) if costs are positively (negatively) correlated. Output variation must be discouraged (encouraged), therefore, and the linear schedule rotates toward the quantity (price) extreme. The better extreme might thereby become the best choice among all three alternatives.     

CAPTIVE FINANCE SUBSIDIARIES: OVERVIEW AND SYNTHESIS

A captive finance company is a wholly owned subsidiary whose primary business is to finance the sales of the parent's products and services. Despite the continued growth and long history of captive finance companies, the issue of the economic impact of forming a captive remains controversial. Some view captive finance subsidiaries as unnecessary structures that may actually reduce the value of the firm. Others hold that captives can produce benefits that will increase firm value. The primary purpose of this paper is to provide an overview of the finance academic literature and to suggest direction for future research.