Template-Type: ReDIF-Article 1.0 Author-Name: Dani Rodrik Author-Email: dani_rodrik@hks.harvard.edu Author-Workplace-Name: Ford Foundation Professor of International Political Economy, Harvard University, Cambridge, MA 02138, USA; and CEPR Research Fellow Title: Premature Deindustrialisation in the Developing World Abstract: 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. Classification-JEL: O14, O19 Keywords: deindustrialization; developing countries; trade; globalisaton Journal: Frontiers of Economics in China Pages: 1-6 Volume: 12 Issue: 1 Year: 2017 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0001-9 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:1-6 Template-Type: ReDIF-Article 1.0 Author-Name: William Charles Sawyer Author-Email: w.c.sawyer@tcu.edu Author-Workplace-Name: Department of Economics, Texas Christian University, Fort Worth, Texas 76129, USA Author-Name: Kiril Tochkov Author-Email: k.tochkov@tcu.edu Author-Workplace-Name: Department of Economics, Texas Christian University, Fort Worth, Texas 76129, USA Author-Name: Wenting Yu Author-Email: wyu1@andrew.cmu.edu Author-Workplace-Name: Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA 15213, USA Title: Regional and Sectoral Patterns and Determinants of Comparative Advantage in China Abstract: 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每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. Classification-JEL: F14, O14, R15 Keywords: comparative advantage; trade; sectors; regional disparities; China Journal: Frontiers of Economics in China Pages: 7-36 Volume: 12 Issue: 1 Year: 2017 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0002-6 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:7-36 Template-Type: ReDIF-Article 1.0 Author-Name: Ying Shen Author-Email: yshen4@nd.edu Author-Workplace-Name: Institute for Economic and Social Research (IESR), Jinan University, Guangzhou 510630, China; Department of Economics, University of Notre Dame, Notre Dame, IN 46556, USA Title: The Effect of Family Size on Children*s Education: Evidence from the Fertility Control Policy in China Abstract: 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. Classification-JEL: I20, J13, J18 Keywords: education; fertility control policy; family size Journal: Frontiers of Economics in China Pages: 37-65 Volume: 12 Issue: 1 Year: 2017 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0003-3 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:37-65 Template-Type: ReDIF-Article 1.0 Author-Name: Xiaolan Zhou Author-Email: xiaolan.z.zhou@gmail.com Author-Workplace-Name: Faculty of Economics and Management, East China Normal University, Shanghai 200062, China Title: Welfare Analysis of Tacit Coordination in the U.S. Airline Industry Abstract: 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. Classification-JEL: L11, L13, L40, L93 Keywords: multimarket contact; common ownership; codeshare; discrete choice model; nonnested test; welfare analysis Journal: Frontiers of Economics in China Pages: 66-93 Volume: 12 Issue: 1 Year: 2017 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0004-0 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:66-93 Template-Type: ReDIF-Article 1.0 Author-Name: Qin Zhou Author-Workplace-Name: School of Public Administration, University of International Business and Economics, Beijing 100029, China Author-Name: Kisalaya Basu Author-Workplace-Name: Health Canada, Brooke Claxton Building, AL-0908B, Tunney*s Pasture 70 Colombine Driveway, Ottawa, Ontario KIA0K9, Canada Author-Name: Yan Yuan Author-Workplace-Name: Research Institute of Economics and Finance (RIEM), Southwestern University of Finance and Economics (SWUFE), Chengdu 611131, China Title: Does Health Insurance Coverage Influence Household Financial Portfolios? A Case Study in Urban China Abstract: 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. Classification-JEL: G11, I13, D12 Keywords: health insurance, financial portfolio, risk exposure, precautionary saving Journal: Frontiers of Economics in China Pages: 94-112 Volume: 12 Issue: 1 Year: 2017 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0005-7 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:94-112 Template-Type: ReDIF-Article 1.0 Author-Name: Binlei Gong Author-Email: gongbinlei@zju.edu.cn Author-Workplace-Name: Department of Agricultural Economics and Management, China Academy for Rural Development (CARD), Zhejiang University, Hangzhou 310058, China Title: Improving the Accuracy of Estimated Returns to Education in China〞Based on Employment Rate, Career Length, and Income Growth Abstract: 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. Classification-JEL: D31, J31, O15 Keywords: current and lifetime income; returns to education; urban-rural disparity; labor migration in China Journal: Frontiers of Economics in China Pages: 113-131 Volume: 12 Issue: 1 Year: 2017 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0006-4 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:113-131 Template-Type: ReDIF-Article 1.0 Author-Name: Yi Che Author-Email: tccheyi@sjtu.edu.cn Author-Workplace-Name: Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai 200030, China Author-Name: Yan Zhang Author-Email: zhang_yan@mail.shufe.edu.cn Author-Workplace-Name: School of Economics, Shanghai University of Finance and Economics, Shanghai 200433, China Title: Legal Knowledge, Land Expropriation, and Agricultural Development in Rural China Abstract: 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. Classification-JEL: P32, Q15, K11 Keywords: legal knowledge; land expropriation; agricultural productivity Journal: Frontiers of Economics in China Pages: 132-166 Volume: 12 Issue: 1 Year: 2017 Month: March File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0007-1 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:1:p:132-166 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, USA; Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China Author-Name: Guoqiang Tian Author-Email: gtian@mail.shufe.edu.cn Author-Workplace-Name: School of Economics and Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China; Department of Economics, Texas A&M University, College Station, TX 77843-1372, USA Author-Name: Yibo Yang Author-Email: yang.yibo@mail.shufe.edu.cn Author-Workplace-Name: Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China Title: China under Uncertainty: Outlook, Counterfactual and Policy Simulations, and Reform Implementation〞A Summary of Annual Report (2016每2017) Abstract: China*s macroeconomy is surrounded by increased uncertainties while facing persistent downward pressures entering year 2017. Major external challenges are imposed by the chaotic political climate and disorderly retreat from globalization of the US accompanied with the impending FED rate hikes, which may trigger a destructive trade war and exert pressures on RMB depreciation and capital flight. Remaining ingrained in major internal challenges are the gridlock risks accumulated from excessive financialization of real estate sector and swelling housing market bubbles amid escalating debt levels, and more fundamentally, the continued off-real-to-virtual movement in the general economy and ascendancy of government over market in resource allocation. Based on IAR-CMM model, which takes into account both cyclical and secular factors, the baseline real GDP growth rate is projected to be 6.5% in 2017 (6.13% using more reliable instead of official data). Counterfactual analyses and policy simulations are also conducted to highlight the convoluted uncertainties surrounding China*s macroeconomy. Through the lens of these analyses, we identify a root cause of the weak outlook as the persistently distorted economic structure due to procrastination in reforms of the institutions and governance, which not only impairs China*s growth potential but also limits the power of its recent stimulating policies while exacerbating their side effects. Key to successful economic restructuring in the face of adversely evolving demographics are market-oriented reforms, with well-designed strategies to balance short-term stabilization and long-run development. Such reforms should hold center stage in China*s transition towards a modern free market economy and regulatory state. Classification-JEL: E01, E17, E27, E37, E47 Keywords: macroeconomic outlook, uncertainty, alternative scenarios, policy simulation, reform, development, governance Journal: Frontiers of Economics in China Pages: 167-187 Volume: 12 Issue: 2 Year: 2017 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0008-8 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:167-187 Template-Type: ReDIF-Article 1.0 Author-Name: Peter Hall Author-Email: PHall@edc.ca Author-Workplace-Name: Export Development Canada, Ottawa, Ontario K1A 1K3, Canada Title: A Shift to Isolationism? Abstract: Developments over the past year have led to serious, widespread concern that the world could be returning to a more isolationist stance. It is perhaps the greatest threat ever levelled at the post-war globalization movement and all of its supporting architecture. This paper argues that due to the unusual nature of the last business cycle, the general public has become impatient with the existing economic and in particular, international trade architecture. It also points out that its typical defenders are unsure of how to do so. In response, what is suggested is that logic puts definite limits on how much change is actually likely to occur, and if so, which strategic responses are most appropriate. Classification-JEL: F13, F15, E3 Keywords: globalization, international trade, protectionism, isolationism Journal: Frontiers of Economics in China Pages: 188-192 Volume: 12 Issue: 2 Year: 2017 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0009-5 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:188-192 Template-Type: ReDIF-Article 1.0 Author-Name: Lin Cheng Author-Workplace-Name: School of Economics, Shanghai University of Finance and Economics, Shanghai 200433, China Author-Name: Shen Zhang Author-Email: zhangshen@sass.org.cn Author-Workplace-Name: Institute of Economics, Shanghai Academy of Social Sciences, Shanghai 200020, China Title: The Spread of Western Economics in China: Features and Influence (1840每1949) Abstract: 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. Classification-JEL: B00, N01, P20 Keywords: Western economics, spreading features, transformation Journal: Frontiers of Economics in China Pages: 193-227 Volume: 12 Issue: 2 Year: 2017 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0010-9 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:193-227 Template-Type: ReDIF-Article 1.0 Author-Name: Zongye Huang Author-Email: huangzongye@gmail.com Author-Workplace-Name: International School of Economics and Management, Capital University of Economics and Business, Beijing 100070, China Title: Structural Transformation under Trade Imbalances: The Case of the Postwar U.S. Abstract: A striking feature of the structural change literature is that, even though the U.S. economy is often used as a benchmark for calibration, the traditional models cannot account for the steep decline in manufacturing and rise in services in the U.S. since the late 1970s (Buera and Kaboski, 2009). In order to solve this puzzle, this paper develops a three-sector model to evaluate various factors that could have contributed to the structural transformation process from 1950 to 2005. The results show that, in addition to traditional explanations, such as non-homothetic preference and sector-biased productivity progress, international trade is another major source of structural change and is able to explain about 35.5% of the overall employment share decrease in American manufacturing. The quantitative calibration estimates that the inter-sector trade makes a moderate contribution, while trade imbalances dominate the recent contraction of manufacturing employment share. Our results suggest that calibrated models based on U.S. data have to be adjusted by trade factors. Classification-JEL: F16, O41, O51 Keywords: trade and structural change, trade imbalance, U.S. manufacture sector Journal: Frontiers of Economics in China Pages: 228-267 Volume: 12 Issue: 2 Year: 2017 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0011-6 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:228-267 Template-Type: ReDIF-Article 1.0 Author-Name: Dihai Wang Author-Email: wangdihai@fudan.edu.cn Author-Workplace-Name: School of Economics, Fudan University, Shanghai 200433, China Author-Name: Gaowang Wang Author-Email: gaowang.wang@sdu.edu.cn Author-Workplace-Name: Center for Economic Research, Shandong University, Jinan 250100, China Author-Name: Heng-fu Zou Author-Email: hzoucema@gmail.com Author-Workplace-Name: China Economics and Management Academy, Central University of Finance and Economics, Beijing 100083, China Title: Competitive Equilibrium in an Overlapping Generations Model with Production Loans Abstract: The paper shows that there do exist two kinds of steady states equilibria in the overlapping generations models with consumption and production loans, similar to the pure exchange economies examined by Gale (1973). Furthermore, the local stability properties of these two (kinds of) steady states are also investigated: In the classical case, the golden-rule steady state is stable and the balanced steady state is saddle-point stable; however, in the Samuelson case, the golden-rule steady state is saddle-point stable and the balanced steady state is stable. Classification-JEL: E21, O41 Keywords: multiple equilibria, overlapping generations model, production loans Journal: Frontiers of Economics in China Pages: 268-279 Volume: 12 Issue: 2 Year: 2017 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0012-3 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:268-279 Template-Type: ReDIF-Article 1.0 Author-Name: Qi Deng Author-Email: qi.deng@xjtlu.edu.cn Author-Workplace-Name: Accounting and Finance Group, International Business School Suzhou, Xi*an Jiaotong-Liverpool University, Suzhou 215123, China Author-Name: Zhong-guo Zhou Author-Email: zhong-guo.zhou@csun.edu Author-Workplace-Name: Department of Finance, Financial Planning, and Insurance, David Nazarian College of Business and Economics, California State University, Northridge, CA 91330-8379, USA Title: IPO Pricing Efficiency in China: A ChiNext Board Focus Abstract: This paper examines what determines the offer price for a ChiNext IPO and discusses how we can improve the current ※Chinese-style§ bookbuilding process. We establish that the ChiNext IPO underwriter relies upon the institutional investors to discover the issuer*s intrinsic value (in the form of a preliminary price), and that the same underwriter adjusts the preliminary price to establish the final offer price, based on its assessment of the institutional investors* motivations. Since the underwriter does not have discretionary power in new share allocation, this ※Chinese-style§ bookbuilding process contains certain pitfalls from an information asymmetry standpoint. The institutional investors mainly use ※simple and direct§ variables that do not adequately reflect the issuer*s true intrinsic value to develop the preliminary price, while the underwriter adjusts that price downward to establish the offer price to clear the market, as a measure to counter a perceived free-rider issue among the institutional investors. This process, in effect, contributes to initial IPO underpricing and causes principal-agent conflicts between the underwriter and the issuer. We argue that such a pricing inefficiency could be improved by an innovative ※bookbuilding plus price discretionary auction§ process, which is a combination of the modified OpenIPO and Taiwan-style auctioned IPO approaches. Classification-JEL: G12, G15, G18 Keywords: ChiNext IPO pricing, underwriter, offline and online investors, bookbuilding plus price discriminatory auction, free-ride, principal-agent and moral hazard problems Journal: Frontiers of Economics in China Pages: 280-308 Volume: 12 Issue: 2 Year: 2017 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0013-0 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:280-308 Template-Type: ReDIF-Article 1.0 Author-Name: Jiangli Zhu Author-Workplace-Name: School of Journalism & Communication, Nanjing University, Nanjing 210032, China Author-Name: Zilian Li Author-Email: dlee@jsnu.edu.cn Author-Workplace-Name: School of Business, Jiangsu Normal University, Xuzhou 221116, China Title: Inequality and Crime in China Abstract: 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每2012 and panel data from 1999每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每2012, secondly, the panel threshold models show that inequality and crime tend to be correlated positively with each other during 1999每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. Classification-JEL: D63, E25, K42, O53 Keywords: inequality, crime, categories of crime Journal: Frontiers of Economics in China Pages: 309-339 Volume: 12 Issue: 2 Year: 2017 Month: June File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0014-7 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:309-339 Template-Type: ReDIF-Article 1.0 Author-Name: Huagang Li Author-Email: hugh.li@sycamoreinvest.com Author-Workplace-Name: GE Capital, 201 High Ridge Rd., Stamford, CT 06905, USA; Sycamore Investment Services (Shanghai) Limited, Shanghai, China Author-Name: Guofu Tan Author-Email: guofutan@usc.edu Author-Workplace-Name: Department of Economics, University of Southern California, Los Angeles, CA 90089-0253, USA Title: Hidden Reserve Prices with Risk-Averse Bidders Abstract: In this paper, we provide an alternative explanation for why auctioneers often keep the reserve price hidden or secret. We consider a standard independent private values environment in which the buyers are risk-averse and the seller has private information about her valuation of the object to be auctioned. The seller uses a first-price sealed-bid auction mechanism combined with either an announced reserve price or a hidden reserve price. We compare the seller*s ex ante expected profits under these two policies and find that the optimal hidden reserve price policy generates higher expected profits for the seller when the buyers are fairly risk-averse under particular restrictions on buyers* preferences and the distributions of private values. As the number of the buyers increases, the hidden reserve price is more likely to dominate. Numerical methods are used to demonstrate the generality of our main results. Classification-JEL: D44 Keywords: first-price auctions, hidden reserve price, risk aversion Journal: Frontiers of Economics in China Pages: 341-370 Volume: 12 Issue: 3 Year: 2017 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0015-4 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:341-370 Template-Type: ReDIF-Article 1.0 Author-Name: Nicolas Boccard Author-Workplace-Name: Economics Department, Universitat de Girona, Girona 17071, Spain Author-Name: Patrick Legros Author-Email: plegros@ulb.ac.be Author-Workplace-Name: Economics Department, Northeastern University, Boston, MA 02115, USA; Universite Libre de Bruxelles (ECARES) Title: Audit Competition in Insurance Oligopolies Abstract: We provide a simple framework for analyzing how competition affects the choice of audit structures in an oligopolistic insurance industry. When the degree of competition increases, fraud increases but the response of the industry in terms of investment in audit quality follows a U-shaped pattern. Following increases in competition, the investment in audit quality will decrease if the industry is initially in a low competition regime while it will increase when the industry is in a high competition regime. We show that firms will benefit from forming a joint audit agency only when the degree of competition is intermediate; in this case, cooperation might improve total welfare and we analyze the effects of contract innovation on the performance of the industry. Classification-JEL: D43, G22, L14, L22 Keywords: insurance fraud, audit quality, oligopolistic competition Journal: Frontiers of Economics in China Pages: 371-399 Volume: 12 Issue: 3 Year: 2017 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0016-1 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:371-399 Template-Type: ReDIF-Article 1.0 Author-Name: Yinxing Hong Author-Email: yinxing@nju.edu.cn Author-Workplace-Name: School of Economics, Nanjing University, Nanjing 210093, China; Yangtze Delta Economic and Social Development Center, Nanjing University Author-Name: Yao Lu Author-Email: luyao@nju.edu.cn Author-Workplace-Name: School of Economics, Nanjing University, Nanjing 210093, China Author-Name: Jianghuai Zheng Author-Email: zhengjh@nju.edu.cn Author-Workplace-Name: School of Economics, Nanjing University, Nanjing 210093, China Title: Industrialized Innovation: The Connection of Science & Technology Innovation with Industrial Innovation Abstract: 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. Classification-JEL: O31, L20 Keywords: scientific and technological innovation, industrial innovation, industrialized innovation Journal: Frontiers of Economics in China Pages: 400-417 Volume: 12 Issue: 3 Year: 2017 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0017-8 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:400-417 Template-Type: ReDIF-Article 1.0 Author-Name: Heinz D. Kurz Author-Email: heinz.kurz@uni-graz.at Author-Workplace-Name: Department of Economics and Graz Schumpeter Centre, University of Graz, 8010 Graz, Austria Title: Technical Progress and the Diffusion of Innovations: Classical and Schumpeterian Perspectives Abstract: The paper discusses the diffusion of new technologies from the perspective of the classical economists and Schumpeter. After a comparison of the pre- and post-technical change long-period positions of the economy, we illustrate the process of transition between the two in terms of a two-sector model. Next, we turn to a system with joint production. The fact that some products may be ※bads§ that need to be disposed of leads to a study of systems of production-cum-disposal. Finally, we investigate the selection pressure innovations exert on incumbent firms. An important message is that technical change cannot generally be studied within a partial framework of the analysis. Classification-JEL: B12, D24, O31, O33, Q55 Keywords: classical economists, creative destruction, diffusion, disposal processes, innovation, joint production, Schumpeter, Joseph A., selection pressure, technical change, transition processes Journal: Frontiers of Economics in China Pages: 418-449 Volume: 12 Issue: 3 Year: 2017 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0018-5 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:418-449 Template-Type: ReDIF-Article 1.0 Author-Name: Zhiqi Chen Author-Email: zhiqi.chen@carleton.ca Author-Workplace-Name: Department of Economics, Carleton University, Ottawa, K1S 5B6, Canada Title: Product Market Competition and Innovation: What Can We Learn from Economic Theory? Abstract: 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. Classification-JEL: L10, O31 Keywords: innovation, product market competition, incentive Journal: Frontiers of Economics in China Pages: 450-464 Volume: 12 Issue: 3 Year: 2017 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0019-2 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:450-464 Template-Type: ReDIF-Article 1.0 Author-Name: Cheng-Zhong Qin Author-Email: qin@econ.ucsb.edu Author-Workplace-Name: Department of Economics, University of California, Santa Barbara, CA 93106-9210, USA Author-Name: Dandan Zhu Author-Email: zhu@econ.ucsb.edu Author-Workplace-Name: Department of Economics, University of California, Santa Barbara, CA 93106-9210, USA Author-Name: Shengping Zhang Author-Email: zsp@gsm.pku.edu.cn Author-Workplace-Name: Guanghua School of Management, Peking University, Beijing 100871, China Title: A Model of Endogenous Cross-Holdings in Oligopoly Abstract: A network approach is proposed to analyze the formation of cross-holdings and anti-competitive implications. Our approach is motivated by the bilateral arrangement of passive ownership between Microsoft and Apple in 1997. We provide a complete characterization of pairwise stable cross-holdings for a model of Cournot oligopoly with a homogeneous product. Our results strengthen the competitive implications of endogenous cross-holdings in Cournot oligopoly found in the literature. Classification-JEL: C72, G0, L1 Keywords: cross-holding, Cournot equilibrium, oligopoly, pairwise stability Journal: Frontiers of Economics in China Pages: 465-479 Volume: 12 Issue: 3 Year: 2017 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0020-6 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:465-479 Template-Type: ReDIF-Article 1.0 Author-Name: St谷phane Caprice Author-Email: stephane.caprice@inra.fr Author-Workplace-Name: Toulouse School of Economics, INRA, University of Toulouse Capitole, Toulouse, France Title: Private Label Positioning and Product Line Abstract: This article examines (i) how retailers position private label products, (ii) why private labels are sold in some product categories but not in others, and why some national brand products may have difficulty in accessing retailers* shelves, (iii) why some private label products are positioned as ※premium§ brands, and (iv) how consumers* surplus and total welfare are affected by private labels. We find that private label positioning leads to less differentiation in product category, which structurally changes a retailer*s product line in return. Consumer welfare and total welfare are lower. Classification-JEL: L13, L81 Keywords: private label, national brand, product line Journal: Frontiers of Economics in China Pages: 480-513 Volume: 12 Issue: 3 Year: 2017 Month: September File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0021-3 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:480-513 Template-Type: ReDIF-Article 1.0 Author-Name: Lihui Wang Author-Workplace-Name: Graduate School of Economics, Kobe University, Nada, Kobe 657-8501, Japan Author-Name: Junyi Shen Author-Email: shen@rieb.kobe-u.ac.jp Author-Workplace-Name: Research Institute for Economics and Business Administration, Kobe University, Nada, Kobe 657-8501, Japan Title: Examining the Factors Affecting Personal Income: An Empirical Study Based on Survey Data in Chinese Cities Abstract: 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. Classification-JEL: C26, D31, J31 Keywords: personal income, earning function, urban China, discrimination Journal: Frontiers of Economics in China Pages: 515-544 Volume: 12 Issue: 4 Year: 2017 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0022-0 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:4:p:515-544 Template-Type: ReDIF-Article 1.0 Author-Name: Dongsheng Di Author-Email: didongsheng@vip.sina.com Author-Workplace-Name: School of International Studies, Renmin University of China, Beijing 100872, China; and also a research fellow with International Monetary Institute of Renmin University of China Author-Name: Warren Coats Author-Email: wcoats@aol.com Author-Workplace-Name: Former chief of the SDR Division of the Finance Department, IMF Author-Name: Yuxuan Zhao Author-Email: yzhao4@worldbank.org Author-Workplace-Name: Agriculture Global Practice, International Bank for Reconstruction and Development (IBRD), Washington, DC, USA Title: Why Does the World Need a Reserve Asset with a Hard Anchor? Abstract: 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. Classification-JEL: E42, F02, F33 Keywords: reserve currency, exchange rate volatility, exorbitant privilege, fiscal discipline, hard anchor, balance of payments, real SDR Journal: Frontiers of Economics in China Pages: 545-570 Volume: 12 Issue: 4 Year: 2017 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0023-7 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:4:p:545-570 Template-Type: ReDIF-Article 1.0 Author-Name: Marlies Sch邦tz Author-Email: amarlies.schuetz@uni-graz.at Author-Workplace-Name: Graz Schumpeter Centre, University of Graz, 8010 Graz, Austria Author-Name: Han Li Author-Workplace-Name: Institute of Quality Development Strategy, Wuhan University, Wuhan 430072, China Author-Name: Nicole Palan Author-Workplace-Name: Graz Schumpeter Centre, University of Graz, 8010 Graz, Austria Title: Are Central and Western Chinese Provinces Catching up with the East? An Empirical Analysis of Convergence Processes across China Abstract: Since the Reform and Opening-up policy had been implemented in 1978, mainland China has experienced significant economic growth, with GDP rising on an annual average of about 10%. However, this growth miracle was far from being evenly distributed across space. It is, therefore, the aim of this paper to study the evolution of spatial disparities in economic development across the country between 1993 and 2012, a period which is characterized by all provinces having access to international markets and being open for international investors. We seek to answer the question of whether Central and Western Chinese provinces were catching up with the East. We define &catching up* as a growing similarity among spatial units. Convergence processes might manifest in four dimensions, including (1) the spatial allocation of employment, value added generation and the fixed capital stock, (2) forms of technical change, (3) productivity patterns, and (4) income distribution. Results show that persistent phases of convergence appeared. However, in some cases the catching up of China*s less developed parts with the flourishing East was limited to only a few Western and Central Chinese provinces. A high degree of path-dependency in economic development prevented catching up from taking place in a more uniform manner. Classification-JEL: O1, O3, O5, R1 Keywords: catching up, convergence process, spatial disparities in economic development, China Journal: Frontiers of Economics in China Pages: 571-606 Volume: 12 Issue: 4 Year: 2017 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0024-4 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:4:p:571-606 Template-Type: ReDIF-Article 1.0 Author-Name: Ying Chu Ng Author-Email: ycng@hkbu.edu.hk Author-Workplace-Name: Department of Economics, Hong Kong Baptist University, Hong Kong, China Author-Name: Suthathip Yaisawarng Author-Workplace-Name: Department of Economics, Union College, Schenectady, NY 12308-2311, USA Title: Can a Government Initiate Enterprise Reform to Improve Efficiency? A Cross-Section Analysis of the Chinese Pharmaceutical Industry Abstract: This paper examines the effects of state-owned enterprises (SOE) privatization, implemented by the Chinese government in the 1990s, on enterprise efficiency for a sample of non-privatized SOEs and privatized ex-SOEs. The study calculates input-oriented DEA meta-frontier efficiency scores, after accounting for heterogeneity in technology across groups. These scores are used to test whether or not one group*s technology dominates the other. A measure of additional input saving is also provided if these enterprises have access to unrestricted meta-technology. The analysis of the Chinese pharmaceutical industry reveals that privatization has not improved enterprise efficiency, at least in the short run. Almost 56% of inputs could be proportionally saved if these privatized ex-SOEs had been efficient, relative to the meta-production technology while non-privatized SOEs could proportionally save only 51%. Privatized ex-SOEs had less ability to access to meta-technology. This finding could be explained by subsequent observations that China, at the time of our analysis, did not have well-established intellectual property rights and formal drug approval procedures; these two factors are important driving forces for developing joint ventures with foreign investors to gain additional capital funding and technology transfer. Broadly speaking, our results are consistent with the subsequent shakeup in the Chinese pharmaceutical industry. Classification-JEL: D22, D24, L2, O25 Keywords: privatization, DEA, managerial efficiency, heterogeneous technology, Chinese pharmaceutical enterprises Journal: Frontiers of Economics in China Pages: 607-634 Volume: 12 Issue: 4 Year: 2017 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0025-1 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:4:p:607-634 Template-Type: ReDIF-Article 1.0 Author-Name: Shiqiang Li Author-Email: lishiqiang@cyu.edu.cn Author-Workplace-Name: School of Economics, University of Chinese Academy of Social Sciences, Beijing 100089, China Title: Decision Making and Ability: An Explanation of Elitism in China*s Government Abstract: This article tries to explain elitism in China*s governmental decision making. Our model shows that the governments* expected utility increases with a bureaucrat*s ability to make decisions under the flexible framework of delegation and communication (with separated reporting strategy). In the early of 1950s, China*s government choose a flexible decision making framework in order to efficiently manage many affairs in a complex environment. This initial choice started the process of a self-reinforcing demand for ability inside of the flexible decision making framework. With the current reforms of streamlining administrations and retreating from the market, the elitism of China*s government might reverse. Classification-JEL: D23, H11, L23 Keywords: elitism, decision rule, China, delegation, communication, bureaucrat Journal: Frontiers of Economics in China Pages: 635-659 Volume: 12 Issue: 4 Year: 2017 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0026-8 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:4:p:635-659 Template-Type: ReDIF-Article 1.0 Author-Name: Yu Chen Author-Workplace-Name: Department of Economics, University of Macau, Macau, China Author-Name: Haiwen Zhou Author-Email: hzhou@odu.edu Author-Workplace-Name: Department of Economics, Old Dominion University, Norfolk, VA 23529, USA Title: An Overlapping-Generations Model of Firm Heterogeneity in Economic Development Abstract: We study firm heterogeneity in economic development in an overlapping-generations general equilibrium model in which manufacturing firms engage in oligopolistic competition. Individuals differ in their productivities in the manufacturing sector and choose to become entrepreneurs or workers. The model is surprisingly tractable. In the steady state, an increase in the entry barrier in the manufacturing sector or an increase in the percentage of income spent on the agricultural good decreases the wage rate, but the level of output in the manufacturing sector does not necessarily decrease. An increase in the degree of patience of an individual increases the steady state wage rate and the capital stock. Even with increasing returns in manufacturing and constant returns in agriculture, neither the wage rate nor the output level in the manufacturing sector may increase with population size. Classification-JEL: D43, L13, O10 Keywords: firm heterogeneity, overlapping-generations model, oligopolistic competition, career choice, economic development Journal: Frontiers of Economics in China Pages: 660-676 Volume: 12 Issue: 4 Year: 2017 Month: December File-URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0027-5 File-Format: Application/pdf Handle: RePEc:fec:journl:v:12:y:2017:i:4:p:660-676