Template-Type: ReDIF-Article 1.0 Author-Name: Jesse A. Schwartz Author-Email: jschwar7@kennesaw.edu Author-Workplace-Name: Department of Economics, Finance, and Quantitative Analysis, Kennesaw State University, Kennesaw, GA 30144, USA Author-Name: Quan Wen Author-Email: quan.wen@vanderbilt.edu Author-Workplace-Name: Department of Economics, Vanderbilt University, Nashville, TN 37235-1819, USA Title: A Characterization for Dominant Strategy Implementation Abstract: We introduce a perfect price discriminating mechanism for allocation problems with private information. A perfect price discriminating mechanism treats a seller, for example, as a perfect price discriminating monopolist who faces a price schedule that does not depend on her report. In any perfect price discriminating mechanism, every player has a dominant strategy to truthfully report her private information.We establish a characterization for dominant strategy implementation: Any outcome that can be dominant strategy implemented can also be dominant strategy implemented using a perfect price discriminating mechanism. We apply this characterization to derive the optimal, budget-balanced, dominant strategy mechanisms for public good provision and bilateral bargaining. Classification-JEL: C72, C78, D44, D82, H41 Keywords: perfect price discriminating (PPD), dominant strategy implementation, Vickrey-Clarke-Grovesmechanisms, public good provision, bilateral bargaining Journal: Frontiers of Economics in China Pages: 1-18 Volume: 8 Issue: 1 Year: 2013 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0001-3 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:1-18 Template-Type: ReDIF-Article 1.0 Author-Name: Qing Liu Author-Email: qliu1997@gmail.com Author-Workplace-Name: School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China Author-Name: Larry D. Qiu Author-Email: larryqiu@hku.hk Author-Workplace-Name: School of Economics and Finance, The University of Hong Kong, Hong Kong, China Title: Cross-Country Externalities of Trade and FDI Liberalization Abstract: We develop a three-country heterogeneous-firm model and show that FDI liberalization in one foreign country (F1) results in the following: (i) some firms from the home country switch from export to FDI in F1; (ii) skilled labor¡¯s wage rate drops in the home country; (iii) wage inequality between the skilled and unskilled labor decreases; and (iv) some firms from the home country switch from FDI to export to another foreign country (F2). The effects from trade liberalization are just the opposite, but the effects from education improvement are qualitatively the same as FDI liberalization. The cross-country externalities work through the domestic labor market. Classification-JEL: F12, F14, F16, F23, J24, J31, L11 Keywords: export, FDI, firm heterogeneity, cross-country externalities, wage inequality, skill training, contractual friction Journal: Frontiers of Economics in China Pages: 19-49 Volume: 8 Issue: 1 Year: 2013 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0002-0 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:19-49 Template-Type: ReDIF-Article 1.0 Author-Name: Yi Jin Author-Workplace-Name: Department of Economics, University of Monash, Caulfield, VIC 3145, Australia Author-Name: Jianbo Zhang Author-Email: jbzhang@ku.edu Author-Workplace-Name: Department of Economics, University of Kansas, Lawrence, KS 66045, USA Title: An Equilibrium Approach to the Aggregation of Beliefs Abstract: This paper presents a new answer to the old question of how to aggregate individual beliefs. We construct a model which allows agents to take arbitrage opportunities against the aggregated belief by making contingent claims against the states, and the aggregator (market maker) regulates the probability of states. When all claims from the agents are mutually covered for every realization of the state, an aggregation of individual beliefs is thus obtained. We prove the existence and uniqueness of the equilibrium aggregation, and also show that the aggregate belief lies in the convex hull of individual beliefs. This model allows us to address some important problems such as how individual agent¡¯s attitude toward risk and wealth endowment affect the outcome of the aggregation process, and whether the aggregate belief satisfies the well-known properties like equal treatment. Classification-JEL: D40, D70, D80 Keywords: aggregation of beliefs, heterogeneous agents, risk attitudes, market equlibrium Journal: Frontiers of Economics in China Pages: 50-63 Volume: 8 Issue: 1 Year: 2013 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0003-7 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:50-63 Template-Type: ReDIF-Article 1.0 Author-Name: Darong Dai Author-Email: daidarong998@163.com Author-Workplace-Name: School of Economics, Nanjing University, Nanjing 210093, China Author-Name: Kunrong Shen Author-Email: shenkr@nju.edu.cn Author-Workplace-Name: School of Economics, Nanjing University, Nanjing 210093, China Author-Name: Ruihua Ma Author-Email: mooncake19880412@sina.com Author-Workplace-Name: School of Management, Nanjing University, Nanjing 210093, China Title: A Case Against Zero Capital-Income Taxation Abstract: This paper develops a dynamic general equilibrium model to investigate the optimal level of capital income taxation in light of stochastic endogenous economic growth. Although endogenous human capital is incorporated into our model, we restrict our investigation to the issue of optimal physical capital income tax; and the labor supply is also endogenously determined. This paper proves that the optimal capital income tax should be zero provided exogenous government expenditure on production; however, capital income should be taxed if we consider endogenous government consumption. Classification-JEL: E13, H21, H50, J22, J24 Keywords: stochastic endogenous growth, endogenous labor supply, endogenous human capital, optimal capital income taxation, endogenous government consumption, governmental altruism Journal: Frontiers of Economics in China Pages: 64-90 Volume: 8 Issue: 1 Year: 2013 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0004-4 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:64-90 Template-Type: ReDIF-Article 1.0 Author-Name: Kunyuan Qiao Author-Email: jasonkqiao@126.com Author-Workplace-Name: Department of Applied Economics, Guanghua School of Management, Peking University, Beijing 100871, China Title: Consumption Inequality in China: Theory and Evidence from the China Health and Nutrition Survey Abstract: We investigate consumption inequality in China both theoretically by constructing a theoretical model that delineates the transmission channels by which income shocks affect consumption and empirically through an Unequally Spaced Dynamic Panel Data model estimation. We find that China is experiencing consumption inequality with the full partial insurance of consumption against both permanent and transitory income shocks, although the impact of both types of shock are larger than the case of the United States. The results are due to precautionary savings motives of the Chinese. We further document how income becomes more dispersed in China and show how the family background of a child affects his outcome to a large extent. Policy implications based on our findings are proposed. Classification-JEL: C1, C5, D1 Keywords: consumption inequality, income shocks, transmission channels, Unequally Spaced Dynamic Panel Data (USDPD) Journal: Frontiers of Economics in China Pages: 91-112 Volume: 8 Issue: 1 Year: 2013 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0005-1 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:91-112 Template-Type: ReDIF-Article 1.0 Author-Name: Lijuan Yang Author-Email: yangduanduan@yeah.net Author-Workplace-Name: School of Economics, Fudan University, Shanghai 200433, China; School of Economics, Lanzhou University, Lanzhou 730000, China Title: Do National Standards Impact Foreign Trade? Evidence from China¡¯s Foreign Trade and Sino-US Bilateral Trade Abstract: This paper investigates the impact of standards on China¡¯s trade volume with the rest of the world and its bilateral trade flows with the US, from panel data covering 33 ICS classified technology sectors between 1990¨C2010. Results show that China¡¯s country specific voluntary standards promote China¡¯s foreign trade and the impact on exports is larger than on imports. China¡¯s internationally harmonized voluntary standards have the strongest positive impact, especially on imports. China¡¯s country specific mandatory standards increase imports while decreasing exports. China¡¯s internationally harmonized mandatory standards are favorable for China¡¯s foreign trade development. China¡¯s country specific voluntary standards and internationally harmonized standards contribute to promoting China¡¯s trade surplus with the US. Classification-JEL: F02, F10, L15 Keywords: standards, China¡¯s foreign trade, standardization, panel analysis Journal: Frontiers of Economics in China Pages: 113-145 Volume: 8 Issue: 1 Year: 2013 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0006-8 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:113-145 Template-Type: ReDIF-Article 1.0 Author-Name: Yingxin Wu Author-Email: lnswyx@mail.sysu.edu.cn Author-Workplace-Name: Department of Economics, Lingnan (University) College, Sun Yat-sen University, Guangzhou 510275, China Author-Name: Xianbo Zhou Author-Email: zhouxb@mail.sysu.edu.cn Author-Workplace-Name: Department of Economics, Lingnan (University) College, Sun Yat-sen University, Guangzhou 510275, China Title: Technical Efficiency in the Chinese Textile Industry Abstract: This paper presents a measurement of the technical efficiency of textile industries with 4-digit codes in China by using the cross-section data from 2002 and 2007 and a fully nonparametric stochastic frontier estimation approach. The technical efficiency of these textile industries is compared across six economic ownership types and across seven regions in China. This uncovers the effects of the proprietary characteristics and the location of a firm on its technical efficiency performance. The nonparametric estimation provides some interesting findings. First, textile production in China performs with a decreasing return to scale. The difference between the output elasticity of labor and that of capital decreases from the year 2002 to 2007. Second, the technical efficiency of the 4-digit textile industry in China is significantly contingent on its ownership and location. Privately-run textile enterprises on average perform with the highest level of technical efficiency among the six ownership types while state-owned enterprises perform with the lowest level of technical efficiency, whether or not the location dummies are accounted for. Third, the technical efficiency evaluated by regions follows the order: ¡°eastern area > southern area > central area > northern area,¡± which remains unchanged across the two years. Classification-JEL: C14, L67, O30 Keywords: technical eff iciency, 4-digit textile industry, nonparametric stochastic frontier model, economic ownership types, location Journal: Frontiers of Economics in China Pages: 146-163 Volume: 8 Issue: 1 Year: 2013 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0007-5 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:146-163 Template-Type: ReDIF-Article 1.0 Author-Name: Kevin X. D. Huang Author-Email: kevin.huang@vanderbilt.edu Author-Workplace-Name: Department of Economics, Vanderbilt University, Nashville, TN 37235-1819, USA Author-Name: Chun Jiang Author-Name: Qingyuan Li Author-Name: Qiwei Zhao Author-Workplace-Name: School of Economics and Management, Wuhan University, Wuhan 430072, China Author-Name: Jia Wang Author-Workplace-Name: World Financial Group, 3300 Holcomb Bridge Road, Norcross, GA 30092-5405, USA Author-Name: Kai Sheng Author-Workplace-Name: School of Mathematical Sciences, Peking University, Beijing 100871, China Title: Financial Development, Foreign Direct Investment, and the Efficiency of Capital Allocation in China Abstract: We study the roles of local financial development and foreign direct investment, and more importantly, their interaction with one another, in local capital allocation, based on Chinese industrial and regional data. Our main finding is that, although local financial development and FDI each individually tended to improve the efficiency of local capital allocation during the sample period, they tended to compete and crowd out each other¡¯s effect, so that one impaired the individual function of the other. In particular, there exists a threshold value for local financial development, above which an increase in FDI reduces the efficiency of local capital allocation, rather than improve it. On the other hand, there exists a threshold value for FDI, above which further development in the local financial system lowers the efficiency of local capital allocation, rather than increase it. Our estimations suggest that the levels of FDI and local financial development in some relatively more developed Chinese regions have already surpassed such threshold values. We provide some interpretations of our findings and we discuss potential policy implications. Classification-JEL: F23, F36, F43, O16 Keywords: foreign direct investment (FDI), local financial development, capital allocation efficiency Journal: Frontiers of Economics in China Pages: 165-185 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0008-2 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:165-185 Template-Type: ReDIF-Article 1.0 Author-Name: Xu Tian Author-Email: xtian@gwdg.de Author-Workplace-Name: Department of Agricultural Economics and Rural Development, and Courant Research Centre ¡°Poverty, Equity and Growth in Developing Countries,¡± University of G?ttingen, 37073 G?ttingen, Germany Author-Name: Xiaohua Yu Author-Email: xyu@uni-goettingen.de Author-Workplace-Name: Courant Research Centre ¡°Poverty, Equity and Growth in Developing Countries,¡± University of G?ttingen, 37073 G?ttingen, Germany Title: The Demand for Nutrients in China Abstract: China is experiencing a nutritional transition accompanied by its rapid economic growth. However, the relationship between income growth and nutritional improvement is still unclear. In contrast with the biased indirect method, this paper employs a direct method to estimate the income elasticities of 22 nutrients using household survey data to fill the gap in the current literature. Our results indicate that the income elasticities of most nutrients are smaller than that which is stated in the current literature using the indirect method, and vary for different income groups. Classification-JEL: D12, O53, Q10 Keywords: nutrients, income elasticity, nutritional improvement, China Journal: Frontiers of Economics in China Pages: 186-206 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0009-9 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:186-206 Template-Type: ReDIF-Article 1.0 Author-Name: Xiaofang Dong Author-Email: xfangdong@gmail.com Author-Name: Shihe Fu Author-Email: fushihe@xmu.edu.cn Author-Name: Yufei Yuan Author-Email: yyuanwise@gmail.com Author-Workplace-Name: Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, Xiamen 361005, China Title: Impact Fees and Real Estate Prices: Evidence from 35 Chinese Cities Abstract: Local governments often charge developers impact fees to finance local public goods. This has been practiced in Chinese cities for more than two decades; however, no empirical studies have tested the effect of impact fees on real estate prices. Using a panel data set for 35 large- and medium-sized cities from 1998 to 2008, we find that impact fees lead to a significant increase in real estate prices. For a given city, an increase in impact fees by one yuan leads to an increase of about 5 yuan in the price of newly-built housing; a 1% increase in impact fees leads to an increase of 5 percentage points in the housing price index and 7 percentage points in the land price index. Journal: Frontiers of Economics in China Classification-JEL: H71, R30, R31 Keywords: impact fee, real estate price, local public finance Pages: 207-219 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0010-3 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:207-219 Template-Type: ReDIF-Article 1.0 Author-Name: Leo H. Chan Author-Email: leohchan@yahoo.com Author-Workplace-Name: Department of Finance and Economics, Woodbury School of Business, Utah Valley University, Orem, UT 84058, USA Title: Which Chinese Markets to Diversify into? Abstract: This paper investigates the correlation and feedback relationships between the Hong Kong Hang Seng Index (HSI), the Hang Seng Chinese Enterprise Index (CEI) and the S&P 500 Index (SP). We divide the indexes into two separate periods, from the inception of the CEI in 1994 to the stock market crash in 2000, and from 2001 to 2011. Our results show that the feedback relationship between the CEI and the SP is stronger after 2000. As the feedback relationship grows stronger, the diversification benefit reduces for US investors who utilizes the CEI as a tool for diversifying into Chinese markets. Classification-JEL: G14, G15, C32 Keywords: market correlation, diversification, Chinese stock market Journal: Frontiers of Economics in China Pages: 220-232 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0011-0 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:220-232 Template-Type: ReDIF-Article 1.0 Author-Name: Chuanchuan Zhang Author-Email: ccz.zhang@gmail.com Author-Workplace-Name: National School of Development, Peking University, Beijing 100871, China Title: Chronic Diseases, Labor Supply and Medical Expenditure at Older Age: Evidence from China Abstract: China has undergone a rapid epidemiological transition from infectious diseases to chronic diseases. Using data from the China Health and Retirement Longitudinal Study (CHARLS), this paper documents the profile of chronic diseases among older Chinese people, estimates the impact of the onset of chronic diseases on the labor supply, and examines the correlation between the prevalence of chronic diseases, a household¡¯s medical expenditure and the role of health insurance in reducing medical costs. Empirical results show that the prevalence of chronic diseases is extremely high among older Chinese people and increases sharply with age. We find significant negative effects from the onset of chronic diseases on an individual¡¯s livelihood at work. The estimation results by age and education suggest that the labor supply of the older and more highly educated people is more sensitive to the onset of chronic diseases. We also show that there can be a substantial indirect loss of individual and household income due to the onset of chronic diseases by limiting the labor supply. We find that the prevalence of chronic diseases is significantly associated with higher out-of-pocket medical expenditure. The reduced-form estimation results suggest that people with insurance have lower medical expenditure caused by minor chronic diseases, but this is only the case for women and urban residents. However, health insurance contributes little in reducing medical expenditure caused by major chronic diseases. Classification-JEL: I10, I13, J2 Keywords: chronic disease, labor supply, household income, medical expenditure Journal: Frontiers of Economics in China Pages: 233-259 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0012-7 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:233-259 Template-Type: ReDIF-Article 1.0 Author-Name: Hui He Author-Email: he.hui@mail.shufe.edu.cn Author-Workplace-Name: School of Economics, and Key Laboratory of Mathematical Economics, Shanghai University of Finance and Economics, Shanghai 200433, China Author-Name: Hao Zhang Author-Email: hao.zhang@ruc.edu.cn Author-Workplace-Name: School of Labor and Human Resources, Renmin University of China, Beijing 100872, China Title: A Rapid Grid Search Method for Solving Dynamic Programming Problems in Economics Abstract: We introduce a rapid grid search method in solving dynamic programming problems in economics. Compared to mainstream grid search methods, by using local information of the Bellman equation, this method can significantly increase the efficiency in solving dynamic programming problems by reducing the grid points searched in the control space. Classification-JEL: C02, E13, E27 Keywords: dynamic programming,Bellman equation, grid search, concavity, searching efficiency Journal: Frontiers of Economics in China Pages: 260-271 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0013-4 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:260-271 Template-Type: ReDIF-Article 1.0 Author-Name: Yi Jin Author-Workplace-Name: Department of Economics, Monash University, Caulfield East, VIC 3145, Australia Author-Name: Jianbo Zhang Author-Email: jbzhang@ku.edu Author-Workplace-Name: Department of Economics, University of Kansas, Lawrence, KS 66045, USA Title: A Closed Form Characterization of the Stationary Outcome in Multilateral Bargaining Abstract: In this paper we consider infinite horizon multilateral bargaining with alternate offers. We prove that there exists only one stationary subgame perfect equilibrium outcome and it corresponds to the unique invariantmeasure of a column stochastic matrix. We characterize this stationary subgame perfect equilibrium outcome in a closed form, and also extend the approach to the multilateral bargaining with random moves. Classification-JEL: C72, C78, D7 Keywords: multilateral bargaining, heterogeneous discount factors, stationary SPE Journal: Frontiers of Economics in China Pages: 272-287 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0014-1 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:272-287 Template-Type: ReDIF-Article 1.0 Author-Name: Jo?o Ricardo Faria Author-Email: rfaria2@utep.edu Author-Workplace-Name: MPA Program, University of Texas at El Paso, El Paso, TX 79968-0703, USA Title: Entrepreneurship and Unemployment Cycles: A Delay Differential Equation Approach Abstract: This paper is an application of delay differential equations to entrepreneurship and unemployment. It shows that the results of empirical studies can be replicated through a simple DDE. The paper also carries out a comparative study between a solution of a DDE and the observation of cyclic behaviors. The calculated delay (and growth rate) of the entrepreneurship DDE for the US and Spain is 1.25 years (1.25), for Ireland is 1.75 years (0.89), and for the UK is 2 years (0.78). The delay (and growth rate) of the unemployment DDE for the US and Ireland is 1.5 years (1.04), for Spain is 2 years (0.78), and for the UK is 2.5 years (0.62). Classification-JEL: L26, M13, C65 Keywords: new firms, employment creation, cycles, delay differential equations Journal: Frontiers of Economics in China Pages: 288-292 Volume: 8 Issue: 2 Year: 2013 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0015-8 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:2:p:288-292 Template-Type: ReDIF-Article 1.0 Author-Name: Hao Li Author-Email: hao.li@ubc.ca Author-Workplace-Name: Department of Economics, University of British Columbia, Vancouver, BC V6T 1Z8, Canada Title: Do Irrational Investors Destabilize? Abstract: In a financial market where all investors have valuable private information, full rationality requires that investors have an unlimited ability of figuring out the equilibrium model. Instead, I assume that due to a lack of knowledge or experience, some investors do not know the equilibrium model and use only their private information in forming their demand. By investigating the investment behavior of these ¡°boundedly rational¡± investors and contrasting it with that of the rational ones, I find that in a market where the two kinds of investors coexist, it is the boundedly rational investors who contribute to price stability. The welfare implication is that, although each investor benefits from conditioning his asset demand on the information transmitted by the equilibrium price, it can happen that all investors lose by doing so because the equilibrium price becomes too volatile. Classification-JEL: D81, D82, D84 Keywords: irrational investor, destabilize, equilibrium, stability Journal: Frontiers of Economics in China Pages: 293-308 Volume: 8 Issue: 3 Year: 2013 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0016-5 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:3:p:293-308 Template-Type: ReDIF-Article 1.0 Author-Name: Alessia Amighini Author-Email: alessia.amighini@eco.unipmn.it Author-Workplace-Name: Department of Economics and Business, University of Piemonte Orientale, Novara 28100, Italy Author-Name: Roberta Rabellotti Author-Email: roberta.rabellotti@unipv.it Author-Workplace-Name: Department of Political and Social Sciences, University of Pavia, Pavia 27100, Italy Author-Name: Marco Sanfilippo Author-Email: marco.sanfilippo@eui.eu Author-Workplace-Name: Robert Schuman Centre for Advanced Studies, European University Institute, Florence 50133, Italy Title: China's Outward FDI: An Industry-Level Analysis of Host-Country Determinants Abstract: We use disaggregated data by country and industry to empirically analyze the host country determinants of Chinese outward foreign direct investment (FDI) for the years 2003 to 2011. Our results suggest that the host-country determinants of Chinese FDI differ between high- and low-income countries. While all Chinese FDI is invariably market seeking, other motivations stand out for differing sectors in specific country groups. The resource seeking motivation is relevant for manufacturing FDI to high-income countries with relatively high fuel abundance, and to low-income countries with primary resource abundance (other than fuels). Differently, the strategic-asset seeking motivation, measured by the level of R&D spending on GDP, only positively and significantly affects Chinese manufacturing and service FDI to OECD countries, while higher education levels are an attraction factor for all investing firms. Natural resource is an important attraction factor for Chinese FDI, not only in resource-related sectors, but also in manufacturing and service sectors. Finally, Chinese FDI tends to follow exports (rather than foster them), especially in service sectors. Classification-JEL: F14, F21 Keywords: China, foreign direct investment, internationalization, trade-FDI nexus Journal: Frontiers of Economics in China Pages: 309-336 Volume: 8 Issue: 3 Year: 2013 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0017-2 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:3:p:309-336 Template-Type: ReDIF-Article 1.0 Author-Name: Haiwen Zhou Author-Email: hzhou@odu.edu Author-Workplace-Name: Department of Economics, Old Dominion University, Norfolk, VA 23529, USA Title: The Choice of Technology and Rural-Urban Migration in Economic Development Abstract: This paper studies a general equilibrium model of rural-urban migration in which manufacturing firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Urban residents incur commuting costs to work in the Central Business District. Surprisingly a change in the size of the population or an increase in the exogenously given wage rate will not affect a manufacturing firm¡¯s choice of technology. This helps to explain why firms in developing countries may not adopt labor intensive technologies even under abundant labor supply. An increase in the number of manufacturing firms increases both the employment rate and the level of employment in the manufacturing sector. However, manufacturing firms choose less advanced technologies. Capital accumulation leads manufacturing firms to choose more advanced technologies, but may not increase employment in the manufacturing sector. Classification-JEL: O14, O18, R14 Keywords: economic development, the choice of technology, rural-urban migration, increasing returns, urbanization Journal: Frontiers of Economics in China Pages: 337-361 Volume: 8 Issue: 3 Year: 2013 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0018-9 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:3:p:337-361 Template-Type: ReDIF-Article 1.0 Author-Name: Jie Zhang Author-Email: jiezhangv@gmail.com Author-Workplace-Name: Graduate School of Economics, Keio University, Tokyo 108-8345, Japan Title: Is Public Capital Productive in China? Evidence from a Panel of Chinese Provinces Abstract: In addition to the direct productivity effect, public capital also has an indirect effect on private capital stock and labor input. This paper offers an evaluation of both the direct and indirect effects of Chinese public capital by applying a trans-log aggregate production function including public capital stock to a panel of regional data from 1986¨C2009. Moreover, we calculate the impact of public capital on regional total factor productivity (TFP) performance by introducing a system GMM estimation. The results show that the output elasticity of Chinese public capital stock is significantly positive, but decreasing year on year, and public capital is found to be a substitute for labor but complementary to private capital input. Finally, public capital has a significant positive effect on regional TFP performance. Classification-JEL: E22, H54, O18, R53 Keywords: Chinese public capital, productivity, total factor productivity Journal: Frontiers of Economics in China Pages: 362-389 Volume: 8 Issue: 3 Year: 2013 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0019-6 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:3:p:362-389 Template-Type: ReDIF-Article 1.0 Author-Name: Biao Gu Author-Email: billgu@shu.edu.cn Author-Workplace-Name: School of Economics, Shanghai University, Shanghai 200444, China Author-Name: Jianfeng Wang Author-Email: wjfruc@126.com Author-Workplace-Name: Research Center of Applied Finance, University of International Business and Economics, Beijing 100029, China Author-Name: Jingfei Wu Author-Email: afeiwu@126.com Author-Workplace-Name: School of Economics, Shanghai University, Shanghai 200444, China Title: An Estimated DSGE Model for Business Cycle Analysis in China Abstract: A small-scale, but highly-stylized dynamic stochastic general equilibrium model is estimated by the maximum likelihood method using Chinese quarterly data. Model specifications and parameter equalities between various competing model variants are addressed by formal statistical hypothesis tests, while implications for business cycle fluctuations are evaluated via a variance decomposition experiment, second-moments matching, and some out-of-sample forecast exercises. It is highlighted that the monetary authority takes an aggressive stance to the current inflation pressure (there is a significant lagged response), while leaving less attention to changes in aggregate output. Variance decomposition reveals that large percentages of variations in real and nominal variables are explained by the highly volatile preference and potential output shock, respectively. When nominal and real frictions as well as additional shocks are included, overall our estimated model can successfully reproduce the stylized facts from actual data of Chinese business cycles and frequently can even outperform those forecasts from an unconstrained VAR. Classification-JEL: E32, E52, C52 Keywords: business cycle analysis, Chinese economy, DSGE model, interest rate rule Journal: Frontiers of Economics in China Pages: 390-429 Volume: 8 Issue: 3 Year: 2013 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0020-0 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:3:p:390-429 Template-Type: ReDIF-Article 1.0 Author-Name: Wenjun Liu Author-Email: liuwenjun@usc.edu.cn Author-Name: Shuliang Zou Author-Workplace-Name: College of Economics and Management, University of South China, Hengyang 421001, China Title: Does Openness Increase the Efficiency of China¡¯s Manufacturing Firms? Evidence from the World Bank Investment Climate Survey Abstract: Based on the World Bank Investment Climate Survey, this paper investigates the openness effects on the efficiency of firms in China¡¯s manufacturing industry using a two-step data envelopment analysis (DEA) approach. In the first step, the aggregate efficiency of open firms and non-open firms is compared in each sub-industry using a group-wise heterogeneous bootstrap procedure. The results show, at a 90% confidence level, that open firms are more efficient than non-open firms in four out of five sub-industries. Furthermore, in the second step, we employ the two-stage bootstrap DEA approach to more specifically evaluate the effects of openness on the efficiency of firms. The regression results show that three openness indicators (foreign capital, import and export) have strong positive effects on firms¡¯ efficiency in China¡¯s manufacturing industry. In addition, the results also suggest that a larger state share, larger firm size, and more capital stock are negatively related to the efficiencies of firms, while a firms¡¯ learning and absorptive capacity is positively related to its efficiency. Classification-JEL: C15, D24, O19, O49 Keywords: openness, efficiency, China, DEA, Investment Climate Survey Journal: Frontiers of Economics in China Pages: 430-451 Volume: 8 Issue: 3 Year: 2013 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0021-7 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:3:p:430-451 Template-Type: ReDIF-Article 1.0 Author-Name: Survey and Research Center for China Household Finance, SWUFE Author-Email: chfs_admin@swufe.edu.cn Author-Workplace-Name: Survey and Research Center for China Household Finance, Southwestern University of Finance and Economics (SWUFE), Chengdu 610074, China Title: Report of China Household Income Disparity Abstract: Based on China Household Finance Survey (CHFS) data, China¡¯s Gini Coefficient stood at 0.61 in 2010, above the global average of 0.44, according to the World Bank. The high Gini Coefficient represents a large income disparity of the country. It is understandable that a high Gini is common in fast-growing economies and can be reduced through government¡¯s transfer payments given the experience of OECD countries. This paper illustrates the breakdown of China¡¯s Gini, regional, rural and urban differences in household income. Specifically, it is found that poor health, insufficient social welfare and low education level are the main reasons for poverty of rural households. This paper also provides solutions to reduce the Gini coefficient. In the short term, China government can invest more on social insurance and implement large-scale transfer payments. The figure shows that China government has sufficient financial sources to strengthen secondary distribution to subsidize the low-income group. In the long term, government can increase overall educational level and reduce the opportunity inequality to narrow the income gap. Classification-JEL: D33, H24, O15 Keywords: household finance, Gini, income disparity, social welfare, transfer payment Journal: Frontiers of Economics in China Pages: 452-466 Volume: 8 Issue: 3 Year: 2013 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0022-4 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:3:p:452-466 Template-Type: ReDIF-Article 1.0 Author-Name: Mohsen Bahmani-Oskooee Author-Email: bahmani@uwm.edu Author-Workplace-Name: The Center for Research on International Economics and Department of Economics, University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA Author-Name: Ruixin Zhang Author-Workplace-Name: Department of Economics, University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA Title: The S-Curve: China versus Its Major Trading Partners Abstract: China has been accused of manipulating its currency to gain international competitiveness and enjoy a trade surplus. The S-Curve is a hypothesis that could be used to test the effectiveness of currency devaluation or depreciation. It claims that while future values of the trade balance and current exchange rate are positively correlated, the past values of the trade balance and current exchange rate are negatively correlated. While China¡¯s aggregate trade flows with the rest of the world conforms to the S-Curve hypothesis, disaggregating trade flows by trading partner reveals that not all partners are affected equally by devaluation. Indeed, trade with 8 out of the 24 partners does not support the S-Curve hypothesis. Classification-JEL: F31 Keywords: S-Curve, China, trading partners, bilateral trade Journal: Frontiers of Economics in China Pages: 467-475 Volume: 8 Issue: 4 Year: 2013 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0023-1 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:467-475 Template-Type: ReDIF-Article 1.0 Author-Name: Jiandong Ju Author-Email: jujd@sem.tsinghua.edu.cn Author-Workplace-Name: Center for International Economic Research, School of Economics and Management, Tsinghua University, Beijing 100084, China; Department of Economics, University of Oklahoma, Norman, OK 73019, USA Author-Name: Xuebing Yang Author-Email: xyang@psu.edu Author-Workplace-Name: Division of Business and Engineering, Pennsylvania State University at Altoona, Altoona, PA 16601, USA Title: The Cosine-Shaped Pattern of Innovations and Technological Advantages: Theory and Evidence Abstract: Using data from 24 OECD countries, we find that the relationship between a country¡¯s R&D investment and technological advantage in a sector (measured by the country¡¯s labor productivity of the sector relative to the rest of the world) is non-monotonic. In particular, for countries whose technology levels are much lower or higher than the rest of the world in a sector, their sectoral R&D investment declines as their advantages in the sector improve; for counties with middle technology levels, the opposite is true. Extending the Eaton and Kortum framework, we develop a static model to theoretically analyze the relationship between R&D investment and technological advantages. We show that when the research efficiency in a sector is sufficiently elastic with respect to the sectoral technological advantage, a country¡¯s R&D investment increases with its technological advantage, and vice versa. Classification-JEL: F11, F14, O31 Keywords: R&D patterns, trade, technological advantage Journal: Frontiers of Economics in China Pages: 476-489 Volume: 8 Issue: 4 Year: 2013 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0024-8 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:476-489 Template-Type: ReDIF-Article 1.0 Author-Name: Xudong Chen Author-Email: chen.xudong@mail.shufe.edu.cn Author-Workplace-Name: Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China Author-Name: Guoqiang Tian Author-Email: gtian@tamu.edu Author-Workplace-Name: Department of Economics, Texas A&M University, College Station, TX 77843, USA; School of Economics and Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China Author-Name: Jijun Xia Author-Email: jijunxia@mail.shufe.edu.cn Author-Workplace-Name: School of Economics, Shanghai University of Finance and Economics, Shanghai 200433, China Title: On the Fundamentals of a Successful Reform for National Prosperity¡ªAn Economic Analysis Based on the Practice of China¡¯s Reform Abstract: This paper discusses the fundamentals required for successful reform, i.e., the necessary institutional changes required to make a nation grow sustainably wealthier. It argues that enriching the people is a prerequisite for a prosperous nation and further reveals the inherent logic behind the statement ¡°in order to enrich the people, they must be given private rights, and in order to protect the people¡¯s private rights, public power must be limited.¡± Based on this argument, we examine and analyze the experience of China¡¯s reform over the past 30 years and come to the conclusion that it is necessary to transform government functions and further deepen market-oriented reform. We hold that China¡¯s economic performance bears no special or exceptional economic law, and there does not exist the so-called ¡°China Model¡± characterized by government taking the leading role as a relatively mature, stable, and widely applicable development model, but that there does exist a Chinese development path or experience featuring the inherent logic of ¡°prospering the nation through enriching its people¡± that can be employed by countries all over the world. Classification-JEL: E61, O20 Keywords: prospering the nation through enriching its people, information asymmetry, incentive compatibility, limited government Journal: Frontiers of Economics in China Pages: 490-515 Volume: 8 Issue: 4 Year: 2013 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0025-5 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:490-515 Template-Type: ReDIF-Article 1.0 Author-Name: Guanzhong James Wen Author-Email: James.Wen@trincoll.edu Author-Workplace-Name: Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China; Department of Economics, Trinity College, Hartford, CT 06106, USA Author-Name: Jinwu Xiong Author-Email: Xiongjw@mail.tsinghua.edu.cn Author-Workplace-Name: Center for Market and Society, and School of Social Sciences, Tsinghua University, Beijing 100084, China Title: Which Type of Urbanization Better Matches China¡¯s Factor Endowment: A Comparison of Population-Intensive Old Puxi and Land-Capital-Intensive New Pudong Abstract: Based on a comparative study of New-Pudong (East Shanghai) and Old-Puxi (West Shanghai) in their respective ability to absorb rural migrants, the very essence of urbanization, this paper finds that, constrained by the current hukou (household registration) system and land tenure system, although New-Pudong has emerged as one of the most modernized urban areas in the world, it did so under an urbanization model that is government-dominant and characterized by high land-intensity and capital-intensity. This model represents a serious mismatch in terms of China¡¯s factor endowment that is characterized with a large but relatively poor rural population. In sharp contrast, guided by the market mechanism under private land ownership and free migration, Old-Puxi emerged as an urbanization model that was very adaptable to China¡¯s factor endowment and stage of development. Therefore, as a model of endogenous urbanization, Old-Puxi is more efficient and inclusive, at the same time more sustainable economically and environmentally, and for this reason more applicable to China at a time when China needs to urbanize most of its rural population urgently to avoid the further worsening of the rural/urban divide and income disparity. Classification-JEL: N95, O18, P23, R52 Keywords: migrants, urbanization, New-Pudong, population-intensive, landcapital-intensive Journal: Frontiers of Economics in China Pages: 516-534 Volume: 8 Issue: 4 Year: 2013 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0026-2 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:516-534 Template-Type: ReDIF-Article 1.0 Author-Name: Giuseppe Lucio Gaeta Author-Email: glgaeta@unior.it Author-Name: Salvatore Ercolano Author-Workplace-Name: Department of Humanities and Social Sciences, University of Naples L¡¯Orientale, 80134, Naples, Italy Author-Name: Elina De Simone Author-Workplace-Name: Department of Economic Studies, University of Naples Parthenope, 80132, Naples, Italy Title: Fiscal Residuum and Localization of Foreign Direct Investments among Chinese Provinces Abstract: This paper examines the impact of fiscal residuum¡ªthe excess of expenditure benefits over tax burdens¡ªon the location choice of foreign direct investments among China¡¯s provinces. Using data provided by the National Bureau of Statistics of China we propose two fiscal residuum indexes for China¡¯s provinces over the period 1998¨C2004. According to Buchanan¡¯s original definition of fiscal residuum a first index is given by the difference between government expenditure and revenue. A second index measures enterprises¡¯ net fiscal benefit and is calculated as the difference between public expenditure that affect business activities and taxes paid by enterprises. We found that the first index does not significantly affect the FDI localization choice while the second one positively affects it. When looking at different subsets of provinces we found that for eastern provinces the first index has a positive and significant effect. These results confirm the role of the net fiscal benefit as a determinant of FDI inflows at the provincial level. Classification-JEL: E62, F21, P21 Keywords: China, foreign direct investments, fiscal residuum Journal: Frontiers of Economics in China Pages: 552-570 Volume: 8 Issue: 4 Year: 2013 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0028-6 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:552-570 Template-Type: ReDIF-Article 1.0 Author-Name: Farhad Taghizadeh Hesary Author-Email: Farhadth@gmail.com Author-Workplace-Name: School of Economics, Keio University, Tokyo 108-8345, Japan; The Institute of Energy Economics, Japan (IEEJ), Tokyo 104-0054, Japan Author-Name: Naoyuki Yoshino Author-Workplace-Name: School of Economics, Keio University, Tokyo 108-8345, Japan Author-Name: Ghahraman Abdoli Author-Name: Asadollah Farzinvash Author-Workplace-Name: Faculty of Economics, University of Tehran, Tehran 141556445, Iran Title: An Estimation of the Impact of Oil Shocks on Crude Oil Exporting Economies and Their Trade Partners Abstract: This research evaluates the impact of oil price shocks on oil producing and consuming economies; we used a simultaneous equation framework for different countries with business relations. As expected, we found that oil-producers (here, Iran and Russia) benefit from oil price shocks. However contrary to previous findings, they also benefit from the indirect effect through their trade partners. For oil-consuming economies, the effects are more diverse. In some countries, output falls in response to an oil price shock, while some others seem to be relatively immune. Generally, those countries which trade more with oil producers gain indirect benefits via higher demand from oil-producers. For instance, the Netherlands, Germany, France, Italy, the US, the UK, and China get a negative direct effect and positive indirect effect from oil producing countries. This is exactly the result that we anticipated. India has both negative effects directly and indirectly and seems to suffer more in a positive oil price shock. For Japan, Spain, Switzerland and Turkey the results are reversed. They benefit from an oil shock directly and indirectly. Classification-JEL: Q43, C30, E32, F43 Keywords: oil, macroeconomic, trade linked case, Iran, Russia Journal: Frontiers of Economics in China Pages: 571-591 Volume: 8 Issue: 4 Year: 2013 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0029-3 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:571-591 Template-Type: ReDIF-Article 1.0 Author-Name: Huan Li Author-Email: lihuan8008@yahoo.com.cn Author-Workplace-Name: Institute of Urban and Regional Economy, School of Economics and Management, Tianjin Chengjian University, Tianjin 300384, China Title: ¡°Convergence¡± or ¡°Divergence¡±? ¡ªRethinking Regional Integration of the Past Two Decades Abstract: The European Union (EU), North American Free Trade Agreement (NAFTA) and Association of Southeast Asian Nations (ASEAN) are the three biggest regional economic cooperation organizations in the world. What roles have these three organizations played in both domestic development and the evolving global trend of regional integration? This paper investigates the inequality among these three organizations for regional economic cooperation based on cross-national parallel data from thirty-nine countries over the period 1989¨C2008. By using the Theil index decomposition, this paper finds that the interregional disparity is the main source of inequality. This paper also finds that intraregional disparity rose significantly from the mid-1990s. ASEAN contributes an equalizing force to the change, while NAFTA contributes a disequalizing force. From the empirical tests based on the Barro non-linear growth regression model, our results show that the whole sample and some subregional samples (ASEAN and EU) support the convergence hypothesis. ASEAN¡¯s convergence speed is the fastest, which testifies to the fact that the convergence speed of the transition path is faster than the long-term path. Classification-JEL: C12, O19, R12 Keywords: regional integration, evolving inequality, ¦Â-convergence Journal: Frontiers of Economics in China Pages: 592-607 Volume: 8 Issue: 4 Year: 2013 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0030-7 File-Format: Application/pdf Handle: RePEc:fec:journl:v:8:y:2013:i:4:p:592-607