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Frontiers of Economics in China

, Volume 7 Issue 4

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Estimation of Censored Regression Model: A Simulation Study
Chunrong Ai, Qiong Zhou
Front Econ Chin. 2012, 7 (4): 499-518.
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We investigate the finite sample performance of several estimators proposed for the panel data Tobit regression model with individual effects, including Honoré estimator, Hansen’s best two-step GMM estimator, the continuously updating GMM estimator, and the empirical likelihood estimator (ELE). The latter three estimators are based on more conditional moment restrictions than the Honoré estimator, and consequently are more efficient in large samples. Although the latter three estimators are asymptotically equivalent, the last two have better finite sample performance. However, our simulation reveals that the continuously updating GMM estimator performs no better, and in most cases is worse than Honoré estimator in small samples. The reason for this finding is that the latter three estimators are based on more moment restrictions that require discarding observations. In our designs, about seventy percent of observations are discarded. The insufficiently few number of observations leads to an imprecise weighted matrix estimate, which in turn leads to unreliable estimates. This study calls for an alternative estimation method that does not rely on trimming for finite sample panel data censored regression model.

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Trade and Rural-Urban Income Inequality: Evidence from China
Hao Wei, Sui Yang, Haoji Huang
Front Econ Chin. 2012, 7 (4): 519-543.
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Using the provincial panel data from 1978 to 2007, this paper makes an empirical analysis of the relationship between international trade and rural-urban income inequality in China. The results show that international trade has a fundamental impact on rural-urban income inequality. For the whole country, the development of international trade from 1978 to 2007 enlarged the rural-urban income gap. During the three different periods (defined in section 3.3), the impact was also noticeable in terms of extent, direction and significance respectively at the national and regional levels. During the three periods, the relationship has an inverted “U” shape for China as a whole, central China and western China, but for eastern China the relationship has a “U” shape. At the same time, exports and imports have different influences on the rural-urban income gap in China, the influences were also different across regions; and the imports has had a more significant influence on these regions than exports has had.

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What Role Does the Political Environment Play in Economic Development? —A Case Study of Fujian Province
Jingwen Yu, Chunchao Wang
Front Econ Chin. 2012, 7 (4): 544-559.
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Uncertainty induced by the political environment affects investment risk, and thus affects investment decisions, which have a close relationship with economic development. This paper investigates the economic cost of political instability using the case study of the tense relationship across-Strait in China. We use a synthetic control method to better model the counterfactual analysis of this case study. The intense situation of the relations across-Strait has great influence on the economic development of Fujian province. Fujian province is the closest province in proximity to Taiwan and also possesses the greatest preferential policies for Taiwanese direct investment. The empirical results of this study reveal that during 2001-2008 Fujian province’s average annual loss in GDP per capita was 682.54 yuan. In other words, GDP per capita in Fujian has declined about 12.1 percent annually during this period compared with GDP per capita as calculated by the synthetic control method.

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The Potential Impact of Sino-Korean Bilateral Trade on Economic Growth and the Environment: A CGE Model Analysis
Zhuoshun Xu, Leshun Xu
Front Econ Chin. 2012, 7 (4): 560-579.
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A consensus is still to be reached regarding the relationship between trade, growth, and the environment in either the existing theoretical models or previous empirical analyses. By using a Sino-Korean case study, we expect this work to contribute to the theoretical and empirical knowledge of the relationship between trade, growth and the environment. In this paper, four types of simulation are executed by applying a Sino-Korea CGE model. The results reveal that an increasing volume of bilateral trade boosts the real GDP at a decreasing rate. Different degrees in the volume of increase of bilateral trade produce welfare gains for Chinese households, i.e. more household spending. Welfare increases at a decreasing rate when the degree of bilateral trade growth increases less stringently, while in Korea there are welfare losses (less household consumption) when the bilateral trade target becomes increasingly stringent. Moreover, the investment gains in the economy tend to rise more sharply as the degree of bilateral trade growth increases less stringently in China. The investment tends to decrease at a proportional rate when the target bilateral trade volume becomes more stringent and the changes in the gross investment become more significant in Korea. In addition, the aggregate production shows a tendency to increase at a proportional rate with a more stringent target bilateral trade volume and when there are considerable changes in gross production. Furthermore, the impact of most production sectors can benefit China, but have a negative impact on Korea. Meantime, the simulations highlight that import growth increases carbon emissions at a decreasing rate, and export growth increases carbon emissions. According to our policy findings, policy makers should be advised to consider the third trade policy (Scenario c), which maintains a reasonable economic growth but at the expense of investment and welfare.

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Effects of Carbon Dioxide Control Policy in China by Multi-Regional CGE Model
Zhengning Pu, Yasuhisa Hayashiyama
Front Econ Chin. 2012, 7 (4): 580-603.
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In recent years, China has faced tremendous pressure to reduce carbon dioxide emissions. At the COP 15 United Nations Climate Change Conference in Copenhagen in 2009, China committed itself to achieve a 40%–45% per GDP carbon dioxide emission reduction in the near future. To reach this goal, China is willing to adopt a series of new policies, including attempts to introduce a carbon tax, and to start an energy-resource-tax pilot program in the western provinces. For this research, we constructed a Multi-Regional Computable General Equilibrium model. Then we used six scenarios to evaluate the economic effects and effectiveness of energy-resource tax policy for control of carbon dioxide emissions for different regions of China. The main result of this research is the finding that an ad valorem energy resource tax can reduce carbon dioxide emissions in China. At the same time, fiscal policy might engender different effects in different regions of China. Additionally, this policy is more efficient for controlling petroleum and natural gas resources than it is for coal resources.

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Price, Tax and Cigarette Smoking: Simulations of China’s Tobacco Tax Policy
Song Gao, Rong Zheng
Front Econ Chin. 2012, 7 (4): 604-626.
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This paper explains the tobacco tax structure and cigarette pricing mechanism in China, develops a general analytical framework for analyzing the Chinese tobacco turnover tax system, and examines the effects of 2009 tobacco tax adjustment on cigarette prices and tax revenue. We find that although the tax is not the most important factor determining cigarette retail prices, the tobacco tax does significantly affect the tobacco industry’s profits under the current tobacco monopoly system in China. Therefore, the adjustment of the tobacco excise tax in 2009 did not raise cigarette retail prices, instead government tax revenue increased. In other words, the net result of the tax adjustment was a transfer of the tobacco industry’s profit to government tax revenues. Profit margins ultimately determine cigarette wholesale and retail prices. From the perspective of tobacco control, China needs to reform its tobacco tax system and collect taxes at the retail level to increase overall cigarette retail prices, as well as reduce the government’s monopolization over cigarette productions and sales.

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The Subnational Penn Effect: Evidence from China
Huayi Yu, Xiang Tang, Rui Wu
Front Econ Chin. 2012, 7 (4): 627-650.
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In this paper we estimate relative consumer price levels as of 2008 for 36 major Chinese cities, using an innovative method purposely designed to rectify three main defects of the existing literature, which are (1) the under-representation of marketized services in the sample data, (2) biased consumption weights, and (3) a mismatch between sample classification and consumption weights. Our estimation results show the “subnational Penn effect” as defined by Tang (2012), i.e., strong inter-city correlations among population size, the relative price level, per capita nominal and real income, and human capital stock, thereby showing that the theoretical model of inter-city price dispersion proposed by Tang (2012) is applicable in China. Our conclusion, methodology, and estimation results have important implications for various aspects of the Chinese economy including the regional, urban and real-estate economies.

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