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  • Orginal Article
    Kevin X.D. Huang, Shuangjian Li, Guoqiang Tian
    Frontiers of Economics in China, 2021, 16(1): 1-29. https://doi.org/10.3868/s060-013-021-0001-0

    Entering year 2020, the Chinese economy was struck by the COVID-19 outbreak. The unprecedented pandemic, entangled with the already elevated complexities in the nation’s internal environment and external surroundings, aggravated its economic outlook. Internal factors including severe education mismatch in China’s labor force, its vanishing demographic dividend, the declined purchasing power of its middle-income groups, risen leverage ratio of households and enterprises, and soared local government debt reinforced to weaken China’s domestic demand. External factors, especially uncertainty in the China-US relation in the face of the re-shaping global value chain, dragged world economic recovery and thus China’s exports and imports. This summary report highlights some major challenges and opportunities faced by the nation under its new development strategy that stresses internal circulation of domestic economy aided by its interaction with the globe. Our analyses based on IAR-CMM model provide a unified framework for addressing China’s short-, medium-, and long-term issues in an internally coherent manner. Looking into year 2021, our benchmark projection reports an 8.4% annual real GDP growth rate. Alternative scenario analyses and policy simulations are conducted to assess the impacts of potential downside risks and the corresponding policy options for ensuring implicit targets. Through the lens of these analyses, we conclude that a refocus on effective management of internal demand, while deepening structural reforms on supply side and advancing orderly opening up, can help smooth the internal and external circulations of the Chinese economy to achieve high-quality development.

  • Orginal Article
    Lihui Wang, Junyi Shen
    Frontiers of Economics in China, 2017, 12(4): 515-544. https://doi.org/10.3868/s060-006-017-0022-0

    This paper empirically analyzes the factors affecting personal income in urban China using survey data of the “Preference and Life Satisfaction Survey” conducted by the Global COE project of Osaka University from 2009 to 2013. We consider education level as an endogenous variable, and both ordinary least squares (OLS) regression and instrumental variable (IV) regression are performed. We find a number of factors, such as sex, age, education, and marriage that significantly affect personal income. In addition, differences between different occupations are also investigated.

  • Orginal Article
    Justin Yifu Lin
    Frontiers of Economics in China, 2021, 16(1): 30-34. https://doi.org/10.3868/s060-013-021-0002-7

    In 2020, China proposed a new development paradigm centered on domestic circulation with a "dual circulation" model in which domestic circulation and international circulation promote each other. This new paradigm reflects a clear understanding of China's development trend that saw its share of exports in the GDP declining steadily since 2006. However, the new paradigm does not necessarily mean that China should change its past policy of fully utilizing domestic and international markets and resources in economic development. Because of large economies of scale in modern manufacturing sector, China should continue to make full use of international markets.

  • Orginal Article
    Jiangli Zhu, Zilian Li
    Frontiers of Economics in China, 2017, 12(2): 309-339. https://doi.org/10.3868/s060-006-017-0014-7

    This paper attempts to investigate comprehensively, a “U”-shaped relationship between income inequality and crime rates in China after building a cost-benefit analysis model, by using time series data from 1981–2012 and panel data from 1999–2012. The empirical results show that: firstly, in the time series model, the U-shaped relationships between inequality and the total crime rate and rates of various crimes except from smuggling, are very significant in the period of 1981–2012, secondly, the panel threshold models show that inequality and crime tend to be correlated positively with each other during 1999–2012, because the inequality level during this period is much higher than the turning points of inequality estimated in the time series models, although three regions with different development levels are located in different parts of a U-shaped curve between inequality and crime.

  • research-article
    Justin Yifu Lin
    Frontiers of Economics in China, 2015, 10(4): 585-590. https://doi.org/10.3868/s060-004-015-0026-0

    “One Belt and One Road” and Free Trade Zones are two of China’s new opening-up strategies developed in response to the changed domestic and international circumstances. Implementation of these strategies can provide China with a sounder market economic system and a better external environment. It can not only help China to further develop into a high income country, but also facilitate the industrialization and modernization of other developing countries.

  • Orginal Article
    Dongsheng Di, Warren Coats, Yuxuan Zhao
    Frontiers of Economics in China, 2017, 12(4): 545-570. https://doi.org/10.3868/s060-006-017-0023-7

    From the 1970s, the global currency system has two features: the use of one or a few sovereign currencies as the global reserve asset and the floating exchange rate regime between major currencies. This paper points out that the costs of the dollar’s use as an international reserve currency exceed the benefits for both the US and the rest of the world. These costs include the exporting of American manufacturing as a byproduct of its current account deficit needed to supply its currency to the rest of the world. In addition to the detriment to trade from unpredictable exchange rate fluctuations, the termination of the U.S. obligation to redeem its currency for gold also removed an important restraint on deficit financing for the US and many other countries in the short-run, thus promoting excessive leverage that was a major contributor to the 2008 financial crisis. The paper suggests replacing several main countries’ currencies in international reserves with a real Special Drawing Right (SDR) issued according to currency board rules.

  • Orginal Article
    Dani Rodrik
    Frontiers of Economics in China, 2017, 12(1): 1-6. https://doi.org/10.3868/s060-006-017-0001-9

    As developed economies have substituted away from manufacturing towards services, so too have developing countries—to an even greater extent. Such sectoral change may be premature for economies that never fully industrialised in the first place. This article presents evidence that countries with smaller manufacturing sectors substitute away from manufacturing to a larger extent, suggesting a trade channel through which falling international relative prices of manufacturing lead price-taking developing economies to substitute accordingly.

  • Orginal Article
    Li Zhang
    Frontiers of Economics in China, 2021, 16(1): 124-169. https://doi.org/10.3868/s060-013-021-0006-5

    The research examines the role of market expansion and international labor division in the British Industrial Revolution from the perspective of globalization. The research shows that British cotton textile output in pieces grew 275 times from the 1770s to the mid-1850s and documents that such growth would never have happened without a vast overseas market for the supply of raw cotton and the sale of products. The paper argues that the continuous and dramatic expansion of overseas markets allowed the British cotton industry to expand greatly without hitting the ceiling of marginal returns, leading not only to the great expansion of production, but also to technological and institutional innovations, and that international labor division made it possible for the industry to import ample amounts of raw cotton and export large amounts of cotton textiles. In contrast, foreign demand for Chinese cotton textiles increased significantly in the late 18th and early 19th centuries, but accounted for only 0.3% of production capacity, which was too little to lift the law of diminishing marginal returns and to induce either technological or institutional changes. As a result, only Smithian growths could be achieved through optimal resource utilization and specialization in production.

  • Orginal Article
    Ying Shen
    Frontiers of Economics in China, 2017, 12(1): 37-65. https://doi.org/10.3868/s060-006-017-0003-3

    Empirical research on the effect of family size on child education is complicated by the endogeneity of family size. This study exploits plausibly exogenous changes in family size caused by China’s population control policy to estimate the causal relationship between family size and child education outcomes. The results show that, compared to an only child, a person with an additional sibling will have an approximate seventeen percentage points lower likelihood of completing middle school in China. Separate regressions across individual characteristics reveal that much of this negative effect appears to be driven by the cohorts born in earlier years after the policy, and children with the highest birth order within a family.

  • research-article
    Xi Weng
    Frontiers of Economics in China, 2015, 10(3): 449-466. https://doi.org/10.3868/s060-004-015-0019-4

    This paper studies the allocative efficiency in a Moscarini (2005)-type equilibrium search environment with learning. It is shown that the stationary equilibrium is efficient if and only if the Hosios condition holds no matter whether learning is about firm-specific human capital or about general human capital. However, the stationary equilibrium can never be efficient if externalities exist from unemployment. In contrast, even with externalities, the stationary equilibrium can be efficient under some modified Hosios condition if there is no uncertainty (standard Mortensen and Pissarides (1994)-type equilibrium search environment). The key intuition is that the equilibrium can only be efficient if firm-worker matching is formed and terminated efficiently.

  • research-article
    Fadzlan SUFIAN, Muzafar Shah HABIBULLAH
    Frontiers of Economics in China, 2009, 4(2): 274-291. https://doi.org/10.1007/s11459-009-0016-1

    This paper seeks to examine the determinants of the profitability of the Chinese banking sector during the post-reform period of 2000–2005. The empirical findings from this study suggest that all the determinants variables have statistically significant impact on China banks profitability. However, the impacts are not uniform across bank types. We find that liquidity, credit risk, and capitalization have positive impacts on the state owned commercial banks (SOCBs) profitability, while the impact of cost is negative. Similar to their SOCB counterparts, we find that joint stock commercial banks (JSCB) with higher credit risk tend to be more profitable, while higher cost results in a lower JSCB profitability levels. During the period under study, the empirical findings suggest that size and cost results in a lower city commercial banks (CITY) profitability, while the more diversified and relatively better capitalized CITY tend to exhibit higher profitability levels. The impact of economic growth is positive, while growth in money supply is negatively related to the SOCB and CITY profitability levels.

  • Orginal Article
    Xu Li,Xiang Shao,Zhigang Tao
    Frontiers of Economics in China, 2016, 11(3): 390-409. https://doi.org/10.3868/s060-005-016-0022-6

    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.

  • Orginal Article
    Steven Globerman
    Frontiers of Economics in China, 2016, 11(4): 537-547. https://doi.org/10.3868/s060-005-016-0028-8

    A growing number of developed country governments in recent years have adopted a hostile attitude towards foreign direct investments undertaken in their markets by state-owned enterprises (SOEs), the latter often based in China. The broad reason for this hostility is the belief that state-owned enterprises pursue non-commercial objectives with resulting damage to host economies. This paper argues that the empirical evidence shows SOEs are increasingly exhibiting market-owned behavior. Furthermore, any adverse consequences of non-commercial behavior are likely to be realized primarily by the SOEs themselves.

  • Orginal Article
    Jushan Bai,Xu Han
    Frontiers of Economics in China, 2016, 11(1): 9-39. https://doi.org/10.3868/s060-005-016-0003-9

    This paper provides a survey on recent developments in structural changes for high dimensional factor models. Compared with conventional low-dimensional time series, structural changes in factor models are more complicated due to the unobservability of factors and factor loadings. The following topics are covered in this survey: the identification conditions for the structural changes in the factor loadings, different impacts of big and small breaks in factor models, tests for structural changes in the factor loadings of a specific variable, tests for structural changes in the factor loading matrix, joint tests for structural changes in the factor loadings and coefficients in factor-augmented regressions, tests for smooth changes in the factor loadings, estimation of break dates, and model selection in factor models with structural changes via the shrinkage method.

  • Orginal Article
    Zhiqi Chen
    Frontiers of Economics in China, 2017, 12(3): 450-464. https://doi.org/10.3868/s060-006-017-0019-2

    By means of a literature review, this paper strives to provide some clarity on the much-debated relationship between product market competition and firms’ incentives to innovate. It shows that in the literature there does not exist a robust relationship between competition and incentives to innovate. Therefore, it would be futile to continue the debate over whether competition stimulates or hinders innovation. A more useful approach is to make a distinction between pre-innovation competition and post-innovation competition, as it provides a way for reconciling many of the seemingly contradictory findings from the literature. Another important insight from the literature is that the relationship between competition and innovation depends on the source of increased competition.

  • research-article
    LIU He
    Frontiers of Economics in China, 2015, 10(3): 396-413. https://doi.org/10.3868/s060-004-015-0017-0

    This article identifies the differences and common features of two global crises: the Great Depression of 1929 and the international financial crisis of 2008. The circumstances of the two crises differ in terms of the demographic structure, the technological conditions, the economic and social systems in developed countries, the extent of globalization and other global economic situations. Among the common features, both crises were preceded by unprecedented economic booms, laisse-faire regulatory policies, easy monetary and credit policies, asset bubbles and yawning income gaps. Moreover, the crises had a strong redistribution effect, which would cause shifts of power among large countries and major changes in international economic order.

  • Orginal Article
    Anping Chen, Nicolaas Groenewold
    Frontiers of Economics in China, 2021, 16(1): 35-66. https://doi.org/10.3868/s060-013-021-0003-4

    There has been much discussion of the sources of China’s growth slowdown but little formal econometric analysis of this question. Chen and Groenewold (2019) show that the slowdown was primarily supply-driven, but they stopped short of identifying specific supply variables. This paper extends their analysis and distinguishes several potential supply components: labor supply, productivity, and capital accumulation. Our results confirm their main conclusion that supply dominates the explanation of the slowdown. A model with two supply factors (labor supply and productivity) reveals that both components contribute to the slowdown, although productivity makes the greater contribution. However, when capital stock is added to the model, the decline in the capital accumulation rate becomes an important factor in the growth slowdown, to some extent replacing the effects of both labor supply and productivity.

  • Orginal Article
    Kevin X. D. Huang,Guoqiang Tian
    Frontiers of Economics in China, 2016, 11(2): 173-191. https://doi.org/10.3868/s060-005-016-0011-2

    This summary report highlights the confluence of continued downward pressures and deflation scares in the face of looming uncertainty in China’s key macroeconomic landscapes. Counterfactual analyses and policy simulations are conducted, in addition to benchmark forecasts, based on IAR-CMM model and taking into account both cyclical and secular factors. Economic deceleration is projected to continue in the short to medium term, with real GDP growth declining to 6.3% (5.5% using more reliable instead of official data) in 2016 and facing a significant risk of sliding further down in 2017. Five key factors contributing to the weak outlook, additional to frictions and impediments associated with economic transition/restructuring and lackluster domestic/external demands, are identified, including: lack of new growth/ development engine, exhaustion of government-led driving force, the crowding-out of private sectors by state-owned enterprises (SOEs) with excess capacity\capital overhang, nonperforming government sectors and officials, and twist or misinterpretation of the “New Normal.” A root cause of these problems, lying with sluggishness in China’s transformation into a market based economy, has to do with overpowered government but underpowered market in resource allocation and government underperformance in enforcing integrity and transparency in the marketplace and in providing public goods and services. At the nexus between inclusive growth and institutional transformation are market oriented and rule of law governed structural reforms and harmonious development. As such, fundamental institutional reforms that dialectically balance demand and supply side factors and properly weigh short run stabilization against long run development should be elevated to the top of the agenda.

  • Orginal Article
    Hailong Qian
    Frontiers of Economics in China, 2016, 11(3): 468-497. https://doi.org/10.3868/s060-005-016-0025-7

    Using a novel approach to calculating the rank of the difference of two asymptotic variance matrices, The author derives the necessary and sufficient conditions for an extra set of moment conditions to be redundant given a set of moment conditions in GMM estimation with general nonlinear restrictions. The necessary and sufficient conditions derived in this paper include as a special case the redundancy of moment conditions for GMM estimation without restrictions that was first derived by Breusch et al. (1999). Therefore this paper advances the research on redundancy of moment conditions from unrestricted GMM estimation to a larger class of GMM estimation. To show their usefulness, the main results of the current paper are applied to instrumental variables estimation of linear regression models and the efficient estimation of seemingly unrelated regressions models, subject to restrictions.

  • Orginal Article
    Yuanyuan Chen, Shuaizhang Feng, Yujie Han
    Frontiers of Economics in China, 2019, 14(2): 168-202. https://doi.org/10.3868/s060-008-019-0010-7

    With the rapid urbanization and mass internal migration in China during the past several decades, the population of children who migrate with their parents to the cities has now reached over 35 million. The education of migrant children poses significant challenges to China’s hukou based education system. In this paper, we first review the policy developments and descriptive studies related to migrant children’s education to offer a comprehensive view of the issue. We then provide in-depth examination of several important quantitative literatures, including the effect of parental migration on children’s education, schooling choices of migrant children and their impacts on school performance, peer effects of migrant children in urban public schools. Overall, although considerable progress has been made regarding migrant children’s education in China, more fundamental policy reforms are necessary to improve the quality of migrant children’s education at the compulsory education level and beyond.

  • Orginal Article
    Yu You,Zongye Huang,Yoonbai Kim
    Frontiers of Economics in China, 2016, 11(4): 635-667. https://doi.org/10.3868/s060-005-016-0032-3

    Global imbalances (current account imbalances) have become an important issue for economists and policy makers. Greater exchange rate flexibility is often suggested as a means to achieve faster and more efficient adjustment in the current account. However, previous empirical studies show little support for this hypothesis. This paper revisits this issue with a large panel dataset and a threshold VAR model and finds that (1) some existing popular exchange rate classifications may not capture actual exchange rate variability as well as expected; (2) Once exchange rate variability is correctly identified, the speed of mean reversion in the current account balance is indeed higher in a regime with greater exchange rate variability.

  • research-article
    Jie Chen,Zhe Li
    Frontiers of Economics in China, 2015, 10(3): 509-526. https://doi.org/10.3868/s060-003-014-0022-2

    The purpose of this paper is to test the applicability of the “financial accelerator” mechanism to China. Using the Chinese Industrial Enterprises Database, we find strong evidence suggesting that the employment and investment of leveraged firms are less responsive to aggregate fluctuations. This finding goes against the implications of the “financial accelerator”. To make sure our empirical result is reliable, we have done several robustness checks using different estimation methods and subsamples.

  • research-article
    Graham Allison, Lawrence Summers
    Frontiers of Economics in China, 2015, 10(3): 393-395. https://doi.org/10.3868/s060-004-015-0016-3
  • Orginal Article
    Shangao Wang, Xu Tian, Yingheng Zhou
    Frontiers of Economics in China, 2021, 16(1): 67-104. https://doi.org/10.3868/s060-013-021-0004-1

    Based on the Chinese General Social Survey 2006 and 2008 data, this paper assesses the influence of the family planning policy on the qualitative development of children using education attainment and individual income of only children versus children with siblings as parameters. Our results show the following: (1) only children are better-educated than their counterparts with siblings; (2) only children earn higher income in comparison to their counterparts with siblings; (3) the income and education gaps between girls with and without siblings are greater than those between boys; (4) the education gaps between only children and children with siblings are greater for those born in the 1970s, but the income difference between only children and children with siblings is only significant for those born in the 1980s; and (5) the income and education gaps between only children and children with siblings are higher in urban regions. Results indicate that families with only one child invest more resources in children’s quality under the family planning policy, which is consistent with the “quantity–quality trade-off” theory proposed by Gary Becker.

  • research-article
    Wenzhang Zhang
    Frontiers of Economics in China, 2015, 10(3): 467-482. https://doi.org/10.3868/s060-004-015-0020-8

    In this paper I present a syntactic approach to modeling the interactive knowledge of rationality in finite games of perfect information. This approach allows for a more transparent interpretation. In particular, we have the intuitive picture of viewing knowledge as the input and decisions as the output of a player’s deliberation. This distinction is blurred in the semantic state-space approach.

  • research-article
    Junjian Yi,Kee Lee Chou,Linda Yung,Junsen Zhang
    Frontiers of Economics in China, 2015, 10(3): 414-448. https://doi.org/10.3868/s060-004-015-0018-7

    Evidence in the literature shows that public-housing residents move less frequently than others. This tendency may restrict school choice for children from public-housing families and lead to school segregation and lower educational outcomes for those children. Our empirical findings from Hong Kong show three strands of evidence that support this hypothesis. (1) Children from public-housing families are more likely to drop out of school after compulsory education. The result is robust after controlling for family background and a series of parental characteristics. (2) Public-housing families with school-age children are less likely to move than their private-housing counterparts. (3) Children from public-housing families are more likely to study in local community schools, which are located on the outskirts of Hong Kong and are of lower education quality. These findings have important policy implications for the public-housing programs such as those which have been implemented in Mainland China since 2011.

  • research-article
    Yongqin Wang,Julan Du,Kai Wang
    Frontiers of Economics in China, 2015, 10(3): 540-565. https://doi.org/10.3868/s060-004-015-0024-6

    China has become the third largest source of outward direct investment (ODI). This paper studies how institutions in the host countries affect the location choices of China’s ODI. Based on a deal-level sample from 2002–2011, this paper empirically tests how political institutions, political stability, government effectiveness, regulatory quality, rule of law and contrd of corruption in the host countries affect the location choices of China’s ODI. On top of these institutional factors, we study the effects of tax evasion and natural resources in host countries, and their interactions with institutional factors. We find that political institutions in the host countries are not major concerns of the ODI, while government effectiveness, regulatory quality, and control of corruption have significant effects on the locations of ODI. In addition, China’s ODI tends to avoid countries with strict legal systems. Tax evasion and resources are also major motives of China’s ODI. General institutional quality and tax evasion are substitutes in China’s ODI location decisions.

  • Orginal Article
    Yinxing Hong, Yao Lu, Jianghuai Zheng
    Frontiers of Economics in China, 2017, 12(3): 400-417. https://doi.org/10.3868/s060-006-017-0017-8

    In light of the relationship and the current disconnection between science & technology (S&T) innovation and industrial innovation in China, it is necessary to put forward and emphasize the concept of industrialized innovation. Industrialized innovation is the bridge and intermediation between S&T innovation and industrial innovation, which is not only a concept, but also a mechanism and combination force. There are two ways to achieve industrialized innovation: through industry-university-research coordination and through technology entrepreneurship. The meaning of industry-university-research coordination is not about coordination among industry, university and research sectors in an institutional sense; rather it is about the coordination of the functions of cultivation and development in new industries, new technologies, and new talents of industrialized innovation. The incentive mechanism for industrialized innovation should motivate not only innovation but also coordination. Technology entrepreneurship is the industrialization of new technology through business start-ups, which occurs beyond the stage of incubation and development of new technology. The capital of technology entrepreneurship is the set consisting of knowledge capital manifested through technological innovation, human capital manifested through entrepreneurs, and physical capital in the form of venture capital. While physical capital is indispensable, knowledge capital and human capital play the decisive role in technology entrepreneurship. The industrialization of technological innovation involves two requirements: one is to enable the new technology industry to achieve a large scale rapidly, and the other is to fully realize the potential value of the new technology. Both requirements are reliant on effective innovation in business models.

  • Orginal Article
    Lin Cheng, Shen Zhang
    Frontiers of Economics in China, 2017, 12(2): 193-227. https://doi.org/10.3868/s060-006-017-0010-9

    The spread of Western economics in modern China is a content-rich historical event which has taken more than a century. A complete understanding of this event depends on the analysis and summary of its features. This paper suggests that the spread of Western economics in modern China exhibits five main features: openness, periodicity, applicability, localization and limitation. Openness reflects the active attitude of Chinese scholars to learning and propagating Western economics. Periodicity reflects the changes in its effectiveness and focus over time. Applicability reflects its goal of promoting the development of Chinese economics and providing policy applications for China’s economic growth. Localization of Western economic theories in China follows the trend of selected introduction and modification according to local situations. And limitation is inevitable because of the many difficulties facing the spread of Western economics during early modern times. Furthermore, this spread has a profound impact on China which is embodied in its features: it promotes the establishment of Chinese modern economics, provides appropriate examples for the modernization and evolution of Chinese society, and promotes transformation of the traditional economic system in China.

  • Orginal Article
    Debin Ma, Cong Liu
    Frontiers of Economics in China, 2018, 13(3): 313-321. https://doi.org/10.3868/s060-007-018-0017-2