In the framework of a dynamic general equilibrium model, this paper studies how vertical externalities affect the development of heavy industry in a developing economy. The model is comprised of an intermediate and a consumer product sector. The production of both types of goods has pecuniary externalities as they are featured by increasing return to scale. However, the production of an intermediate product has an additional advantage to have externalities through its technological linkage with the production of consumer goods. This is related to the nature of the roundabout production of consumer goods: a larger number of intermediate products lead to higher productivity in the production of consumer goods than do more inputs of a fixed number of intermediate products. Therefore, private investment in the intermediate sector is below the social optimal level. Government subsidies can restore the economy to the social optimum, but they become less needed as the consumer sector grows larger and the advantage of the intermediate good sector diminishes.
Inflation is always an important indicator to measure whether economy is stable and healthy. This paper provides a substantive survey of the research on the welfare cost of inflation, and uses the methods of consumer’s surplus and neo-classical general equilibrium models respectively to estimate the welfare cost of inflation in China. The results show that high inflation will cause huge welfare cost in China, so keeping low inflation is beneficial to the entire economic welfare of China.
Taking the inflation into consideration and making use of the quarter data of the actual foreign investment, housing and land prices in China from 1998 to 2006, this paper examines the relationship between housing prices and international capital flows using Error Correction Model (ECM) and Granger causality test. Results show that in the short run, the increase of housing prices attracts the inflow of foreign capitals; in the long run, foreign capitals help to boost the rise of housing prices. Therefore, at present, Chinese government must impose effective restrictions on the flow of foreign capital into the real estate market.
Using China’s panel data of 30 provinces during 1990–2003, this paper attempts to explore a possible link between financial development and China’s foreign trade. Four indicators are used to identify the role of financial development, which capture both the scale and efficiency feature of China’s regional financial development. The effects of other variables are also investigated, including traditional factor endowments, foreign direct investment, infrastructure and institutional quality, etc. In general, the estimation results suggest that financial development has a quantitatively large and robust effect on China’s manufactured goods trade, among which the financial efficiency indicators play a more significant role in promoting manufactured goods trade than those scale indicators. Sensitivity estimations show that the effect of financial development on China’s total trade essentially differs from that on trade in manufactured goods.
With new data and a new methodology, this paper reassesses the forces that led to the rise of Chinese sericulture in the late nineteenth and early twentieth centuries. The study challenges the prevailing view that Chinese peasants switched to sericulture in order to gain a higher aggregate family income at the cost of a lower net income per workday. Based on a case study of Wuxi, the research indicates that until the late 1920s, sericulture had provided peasants not only higher aggregate income, but also higher returns on labor. Peasants were more pulled by higher profit than by high population pressure to switch to sericulture.
This paper empirically examines the potential for forming an Optimal Currency Area (OCA) in selected Asian economies, including ASEAN countries, China, Japan and Korea, by testing Generalized Purchasing Power Parity (G-PPP) using Johansen’s cointegration approach. We investigate the long-term real exchange rate of six sub-groups of countries in order to find whether they share the common stochastic trend, as in an OCA, predicted by the G-PPP theory. The date set is monthly based between 1994 and 2003. We find that five sub-groups out of the six in total appear to have significant evidence of the existence of OCAs. This finding reflects the fact that those economies are actually highly integrated and interrelated to each other, and the current regional monetary arrangement (such as, the Chiang Mai Initiative (CMI)) is far lagging behind the real economic link in East Asia.
This paper studies the long-term relationship between FDI and imports and exports through evidence from China by using cointegration technology, and the Granger causality test shows that FDI had an obvious effect on imports and exports activities of foreign firms, and in the meantime, the imports and exports of foreign firms greatly promoted FDI. However, there is not a stable equilibrium between FDI and international trade in the long run for all firms in China. This paper provides some explanations for the possible reasons that cause the above difference in estimation results from the perspectives of both location and industry factors.
Based on an adjusted Solow economic growth model, using econometric tools such as cointegration test and Granger causality test, taking the economic factors such as foreign trade and foreign investment into account, this paper makes regression analysis on the effect of economic opening on China’s economic growth by using the data from 1985 to 2004. The analysis indicates that the domestic capital input is still the primary element that promotes China’s economic growth, by contrast, the effect of foreign trade and foreign investment is faint. It is a bidirectional causality between foreign trade and economic growth, and the adjusting velocity of trade is larger than the foreign direct investment on the balance of the China’s long-time economic growth.
This paper extends the work of Zhu Xianchen and Li Yulian (2007) by introducing the fairness compatibility constraint. Our work strengthens the explanatory power of their model. Whether a collective action can be realized depends not only on the organizer and followers’ individual rationality constraints, but also on their fairness compatibility constraints. Collective actions that meet the organizer’s individual rationality constraint but do not meet his fairness compatibility constraints cannot be realized. Furthermore, free-riders play a destructive role, which should not be ignored.
