How fast can China grow? The Middle Kingdom's prospects to 2030

Given its size and importance for global commodity markets, the question of how fast China can grow over the medium term is an important one. Using a Cobb–Douglas production function, we decompose the growth of trend GDP into those of the capital stock, labour, human capital and total factor productivity (TFP) and then forecast trend output growth out to 2030 using a bottom‐up approach based on forecasts that we build for each one of these factors. Our paper distinguishes itself from existing work in that we construct a forecast of Chinese TFP growth based on the aggregation of forecasts of its key determinants. In addition, our analysis is based on a carefully constructed estimate of the Chinese productive capital stock and a measure of human capital (based on Chinese wage survey data) that better reflects the returns to education in China. Our results suggest that Chinese GDP growth will slow from around 7% currently to approximately 5% by 2030, consistent with a gradual rebalancing of the Chinese economy characterized by a decline in the investment rate. Moreover, our findings underscore the growing importance of TFP growth as a driver of Chinese growth.     

Do funded pensions contribute to higher aggregate savings? A cross-country analysis

Do Funded Pensions Contribute to Higher Aggregate Savings? A Cross-Country Analysis.—In this paper we test the hypothesis that increases in funded pension wealth contribute to higher aggregate savings by employing a panel data set of ten countries over the 1982–1993 period. We develop a proxy for changes in funded pension wealth for this sample of countries based on pension fund asset data. Using this measure and controlling for other determinants of savings, we estimate the relationship between aggregate saving rates and changes in funded pension wealth. Our results suggest that the build-up of pension assets exerts a positive and statistically significant effect on aggregate saving rates, and that this impact differs for OECD and non-OECD countries. JEL no. E21, G23, O57     

Profitable Buybacks in Sovereign Debt

Since the 1982 debt crisis, several debtor countries have repurchased fractions of their debts. Bulow and Rogoff have argued that these buybacks benefit the banks but not the countries. Krugman argues the opposite. This paper provides an explanation of why buybacks benefit both countries and banks. A lending environment with terms-of-trade shocks is considered. If a country defaults, banks impose a penalty on the country and incur some costs. It is shown that with a buyback, the country defaults on a smaller loan, if at all, and the economy saves part of these costs, if not all.     

The dynamics of preference formation

Individual's preferences are explained on the basis of two types of influences, his own past consumption and the consumption of others which is directly observable by him. These effects are estimated using the “individual welfare function” approach of Van Praag, and a model of preferences formation.     

The dynamics of preference formation

A model is developed and estimated which explains the formation of individual preferences on consumption under the influence of contacts with others (preference interdependence) and own consumption over time habit formation). The model employs a cardinal utility function which can be measured independently of behavioral assumptions. Since preference interdependence has been analyzed earlier, the paper concentrates on habit formation, the preference interdependence component being imputed from an earlier study. Due to data restrictions and measurement error, special econometric provisions must be made. Preference interdependence appears to explain two thirds of individual preferences and habit formation one third.