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Frontiers of Economics in China

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, Volume 12 Issue 1 Previous Issue   
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Orginal Article
Premature Deindustrialisation in the Developing World
Dani Rodrik
Front. Econ. China. 2017, 12 (1): 1-6.   DOI: 10.3868/s060-006-017-0001-9
Abstract   PDF (1015KB)

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.

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Regional and Sectoral Patterns and Determinants of Comparative Advantage in China
William Charles Sawyer, Kiril Tochkov, Wenting Yu
Front. Econ. China. 2017, 12 (1): 7-36.   DOI: 10.3868/s060-006-017-0002-6
Abstract   PDF (1244KB)

China’s export performance is marked by large regional disparities which affect trade patterns at the national level. This paper uses data from input-output tables to estimate the comparative advantage of Chinese provinces in the three main economic sectors over the period 1992–2007. In contrast to existing studies, we include the services sector in the analysis and construct not only indices of revealed comparative advantage for overall trade, but also bilateral indices for interprovincial trade. The results indicate that West and Central China have a comparative advantage in agriculture/mining, coastal provinces in manufacturing, and metropolitan provinces in services. However, interprovincial trade exhibits a more complex pattern. Regression analysis identifies labor endowments as the key determinant of comparative advantage in total trade, while physical capital is the driving force in domestic trade. Human capital and government spending have a positive effect, whereas industrial loans and taxes, along with provincial trade barriers, impair comparative advantage.

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The Effect of Family Size on Children’s Education: Evidence from the Fertility Control Policy in China
Ying Shen
Front. Econ. China. 2017, 12 (1): 37-65.   DOI: 10.3868/s060-006-017-0003-3
Abstract   PDF (2238KB)

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.

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Welfare Analysis of Tacit Coordination in the U.S. Airline Industry
Xiaolan Zhou
Front. Econ. China. 2017, 12 (1): 66-93.   DOI: 10.3868/s060-006-017-0004-0
Abstract   PDF (267KB)

This paper studies airlines’ competitive behavior in the U.S. airline industry, focusing on 2014 data. I use a structural model to estimate demand and test several supply models, including noncooperative competition, perfect collusion, and tacit coordination. There are three different types of tacit coordination, formed by multimarket contact, common ownership, and codeshare agreement, respectively. I find that the model that fits the data best is a tacit coordination model with coalitions between airlines with at least 30% of their markets overlapped and using price rather than quantity as the strategic variable. I further analyze the consumer welfare loss, each carrier’s profit gains, and changes in market variables due to the tacit coordination.

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Does Health Insurance Coverage Influence Household Financial Portfolios? A Case Study in Urban China
Qin Zhou, Kisalaya Basu, Yan Yuan
Front. Econ. China. 2017, 12 (1): 94-112.   DOI: 10.3868/s060-006-017-0005-7
Abstract   PDF (340KB)

Health insurance lowers the medical financial burden of the insured through a risk-sharing mechanism, and more importantly, reduces the motivation for precautionary saving. This paper explores the relationship between health insurance coverage and household financial portfolios. We choose 2002 urban China as a case study when the health insurance system had a problem of limited adverse selection. Using data from the 2002 Chinese Household Income Project Survey, we find that health insurance coverage influences households’ preference for financial assets, especially for the risky financial assets. These effects become more pronounced as the coverage rate of health insurance in the family increases. Our results are consistent with precautionary saving theory which suggests that future expenditure risk could affect household asset portfolios. Therefore, development of social security or a health insurance system could effectively promote the development of financial markets, especially riskier aspects of financial markets.

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Improving the Accuracy of Estimated Returns to Education in China—Based on Employment Rate, Career Length, and Income Growth
Binlei Gong
Front. Econ. China. 2017, 12 (1): 113-131.   DOI: 10.3868/s060-006-017-0006-4
Abstract   PDF (282KB)

Most empirical studies on the returns to education use current income to proxy for lifetime income due to the lack of longitudinal data. This simplification is found to cause biased estimates and the result is conditional on being employed. This paper quantifies the returns to education with heterogeneity in employment rates, career lengths, and income growth rates. Using data from China, this paper attempts to account for these differences across the life-cycle and estimates the returns to education in terms of lifetime income when actual lifetime earnings data are not available. The model clarifies the mathematical relationship between conditional current returns to education, unconditional current returns to education, and unconditional lifetime returns to education. This new approach explains how employment rates, career lengths, and income growth rates affect the direction and magnitude of the bias in estimating the returns to education.

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Legal Knowledge, Land Expropriation, and Agricultural Development in Rural China
Yi Che, Yan Zhang
Front. Econ. China. 2017, 12 (1): 132-166.   DOI: 10.3868/s060-006-017-0007-1
Abstract   PDF (631KB)

By using household survey data, this paper examines the effect of legal knowledge, a proxy for farmers’ ability to protect their land, on agricultural development in rural China. The Ordinary Least Square (OLS) estimation results indicate that legal knowledge in a household raises agricultural production. Further, once the production effect of legal knowledge is controlled for, the objective measure of land expropriation has no production effect. These results survive for alternative measures of legal knowledge and subsample analysis. A two-stage least squares strategy further confirms that the effect of legal knowledge on farm production is causal. A preliminary channel analysis suggests that the impact of legal knowledge on farm production works mainly through farmyard manure investments and labor incentives.

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