China Economic Quarterly Vol.15,No.2


 date:2016-4-5 9:34:00 source:BiMBA         

China Economic Quarterly

 

Vol.15        No.2

 

January 2016

 

CONTENTS

 

Papers

………………………………………………Lei Li    Bo Hu    Yanyan Zheng / 429

The Economic Cycles from Qianlong to Xuantong in Qing Dynasty: A Spectrum Analysis Based on Rice Prices in Kaifeng and Taiyuan

……………………………………………Chang Luo    Qihang Li    Yi Fang / 453

Stock Return and Inflation: A Shorthorizon Perspective in the Chinese Hyperinflation

………………………………………………………………………Liuyan Zhao / 479

Expected Inflation and Firms’ Inventory Adjustment

……………………………………Pingui Rao    Heng Yue    Guohua Jiang / 499

Financial Crisis, Unconventional Monetary Policy and Central Bank Balance Sheet: An Explanation to the Unconventional Monetary Policy Paradox of the Fed and ECB

……………………………………Jingjia Zhang    Lanbiao Liu    Bo Wang / 527

Does Higher Income Inequality Lead to Higher Housing Price?

……………………………………………………………Shu Xu    Xun Chen / 549

A Good House Gets You a Good Wife: Rural Housing Investment and Marriage Matching

………………………………………………………Li Fang    Chuanhao Tian / 571

Guanxi, Formal and Informal Credit

……………………Yongyuan Sun    Zaichao Du    Lin Zhang    Jincai He / 597

The Impact of Work Unit’s Ownership on Wage Differentials between the Labor of Urban and Rural Household Registration

…………………………………………………Jinxiong Chang    Haitao Zhao / 627

Does Cultural Segmentation Caused by Administrative Division Harm RegionalEconomic Development in China?

……………………………………………Xiang Gao    Cheryl Xiaoning Long / 647

Transfer Payment and Interregional Disparities of Economic Development

…………………………………………………………Husen An    Haobo Wu / 675

Resource Endowment and Public Goods Supply under the Game of Local Interests Subject

…………………………………………………Jianbao Chen    Ningning Qiao / 693

Information Quality, Market Evaluation and Incentive EffectivenessEvidence from the New Fortune’s Analysts Ranking

…………………………………Weili Wu    Zheng Zhang    Kunyuan Qiao / 723

Financing SourcesCash Holdings and R&D SmoothingEvidence from the Biomedical Manufacturing

………………Shue Wu    Weizhou Zhong    Jianbo Wei    Zhenlei Huang / 745

Market Efficiency and Asset Growth Anomaly: An Empirical Investigation between Optimal Investment Effect Hypothesis and Mispricing Hypothesis

……………………………………………………………………………Qi Lin / 767

Hukou System ReformIndividuals Flows and Regional DisparitiesBased on the Intertemporal Model of Heterogeneous Individuals Flows

…………………………………………………………Jiangli Zhu    Zilian Li / 797

Does China’s New Rural Pension Scheme Improve the Life Quality of the Rural Elderly?

……………………………………Ye Zhang    Lingguo Cheng    Zhibiao Liu / 817

 

Is Obesity Contagious?

LEI LI

(Nankai University)

BO HU

(London School of Economics and Political Science)

YANYAN ZHENG

(Tianjin Foreign Studies University)

Abstract     Using China Health and Nutrition Survey (CHNS) data, we empirically analyze the contagiosity of obesity. With individual’s and community’s characteristics controlled, the empirical results show that the average BMI of other people in the same community has a significantly positive effect on individual’s BMI, which indicates that obesity is contagious. With endogeneity of core explanatory variables considered using 2SLS, empirical results are still robust. We then use quartile regression and find that the BMI of fat people is more susceptible to the BMI of others. Finally, we analyze the contagious mechanism of obesity through social networks.

Key Words     BMI, Obesity, Contagious

JEL Classification     I10, Z13, D85

 

The Economic Cycles from Qianlong to Xuantong in Qing Dynasty: A Spectrum Analysis Based on Rice Prices in Kaifeng and Taiyuan

CHANG LUO

Shanxi University

QIHANG LI

Shandong University of Finance and Economics

YI FANG

Central University of Finance and Economics

Abstract     Using wheat prices of the prefecture of Kaifeng and Taiyuan, and with the method of spectrum analysis, this paper managed to work out the economic cycle from Qianlong to Xuantong in Qing dynasty. We find that from 1736 to 1911 China has 3 long economic cycles, each of which lasted for 60 years. Each long cycle can be divided into several middle-length cycles. Major military spending stimulated the rising rice prices. We also find that extreme climate change and silver supply affected the change of the economic cycle.

Key Words     the Qing dynasty, economic cycle, spectrum analysis

JEL Classification     E32, N15, O11

 

Stock Return and Inflation: A Short-horizon Perspective in the Chinese Hyperinflation

LIUYAN ZHAO

 (Peking University)

Abstract     We examine the short-term relationship between stock returns and inflation during the Chinese hyperinflation after World War II. Stocks appear to be a complete hedge against expected inflation, and even a partial hedge against unexpected inflation. In contrast to the stock return-inflation puzzle, we find that Fisher hypothesis is applicable to common stocks even in short-horizon during the episode of Chinese hyperinflation.

Key Words     Fisher hypothesis, the stock returninflation puzzle, hyperinflation

JEL Classification     E42, F15, N25

 

Expected Inflation and Firms’ Inventory Adjustment

PINGUI RAO

(Jinan University)

HENG YUE     GUOHUA JIANG

(Peking University)

Abstract     In this paper we investigate how expected inflation influences firms’ inventory investment. Using the Price Expectation Index in the depositor survey reported by People’s Bank of China, and with random walk model and simple Phillips curve model to measure expected inflation, we find that expected inflation influences firms’ inventory investment. In general, firms will increase their investment in inventory when expected inflation is high. We also find that firms that adjust their inventory according to expected inflation perform better than those do not. Further investigation finds that the adjustment for expected inflation leads to better performance only when the expectation of inflation is accurate. Our study contributes to the literature by investigating the effect of inflation at firm level and sheds light on the relationship between macro policy and micro activities.

Key Words     expected inflation, adjustment of inventory, performance

JEL Classification     D21, D24, G31

 

Financial Crisis, Unconventional Monetary Policy and Central Bank Balance Sheet: An Explanation to the Unconventional Monetary Policy Paradox of the Fed and ECB

JINGJIA ZHANG     LANBIAO LIU     BO WANG

(Nankai University)

Abstract     In this paper we directly introduced unconventional monetary policy indicators into factor-augmented vector auto-regression (FVAR) models to study the influences of unconventional monetary policies used by the Fed and ECB on interest rates, price level and spillover effects on emerging countries like China. We also built unconventional monetary policy indicators of the Fed and ECB using data from central bank balance sheet for the first time, and discussed the existence and similarity of Interest Rate Constraint Paradox and Price Paradox of Fed and ECB's unconventional monetary policies under a unified empirical framework.

Key Words     unconventional monetary policy, interest rate constraint paradox, price paradox

JEL Classification     E52, E58, E61

 

Does Higher Income Inequality Lead to Higher Housing Price?

SHU XU

XUN CHEN

(Southwestern University of Finance and Economics)

Abstract     This paper demonstrates that increasing inequality leads to higher housing price. Building on a sequential decision model, we elaborate the economic mechanism through which inequality promotes housing price. We then empirically test the consistency of the model’s prediction. The results indicate that one standard deviation increase in inequality will raise the relative housing price by 0.070.09 standard deviation, and absolute housing price by 3447 RM. Furthermore, the impact is stronger in provinces with lower level of housing market competition. Our study highlights that the reform of income distribution system will not only facilitates social equity, but also restrain the increase of housing price.

Key Words     income inequality, housing price, market competition

JEL Classification     D63, R31, J01

 

A Good House Gets You a Good Wife: Rural Housing Investment and Marriage Matching

LI FANG

(University of Maryland)

CHUANHAO TIAN

(Zhejiang University)

Abstract     In this paper we try to explain the The Rural Housebuilding Craze by investigating the role of housing investment in marriage matching. We apply the Spences signal model into the marriage market and refer it to housing investment as a signal to reveal males unobservable quality. Whether the signaling will result in a pooling equilibrium or a separating equilibrium depends on the reservation utility of getting married, the interest rate and the distribution of male and females qualities. When a separating equilibrium forms, males and their families make different housing investment according to their unobservable qualities, and females can tell males’ otherwise hidden quality through the appearance of their housing. Successful assortative matching can thereby be made. Using survey data from three provinces in China, we find a relationship between the timing of marriage and timing of housing investment, and a positive relationship between husband’s pre-marital housing investment and wife’s height and education.

Key Words     housing investment, marriage matching, signaling

JEL Classification     J13, J16, Q15

 

Guanxi, Formal and Informal Credit

YONGYUAN SUN

ZAICHAODU*

LINZHANG

Southwestern University of Finance and Economics

JINCAIHE

Chongqing Jiaotong University

Abstract     Using 2011 China Household Finance Survey (CHFS) data, we study the impact of Guanxi on obtaining loans. We find that Guanxi has a positive effect on formal loans, but has insignificant effect on informal loans. Specifically, as Guanxi index increases by 1%, the probability of getting formal loans, the number of formal loans and the volume of formal loans increase by 0.18%, 0.0024 and 3.2% respectively. The results of sub-indexes show that a family’s authority, spending on establishing and enhancing Guanxi can raise the ability of getting formal loans, while blood-based Guanxi can increase the ability of getting informal loans. Moreover, the marketization doesn’t change the effect of Guanxi on obtaining loans.

Key Words     Guanxi, formal credit, informal credit

JEL Classification     D14, O17, Z13

 

The Impact of Work Unit’s Ownership on Wage Differentials between the Labor of Urban and Rural Household Registration

JINXIONG CHANG

(Shanghai University of Finance and Economics)

HAITAO ZHAO

(Shanghai Academy of Development & Reform)

Abstract     Based on CHNS data, we analyze the sources of wage discrimination in China’s urban labor market. The results indicate that (1) the gap of returns to education between labor of urban and rural household registration is biggest in state-owned enterprises; (2) the unexplained part in wage differentials between labor of urban and rural household registration is highest in state-owned enterprises and is lowest in private enterprises; (3) state-owned enterprises pay significant higher wages than non-state-owned enterprise. Besides, labor of urban household registration get a significantly higher premium than labor of rural, and these characteristics’ trend is aggravated over time.

Key Words     ownership nature, wage discrimination, returns to education

JEL Classification     J24, J31, J49

 

Does Cultural Segmentation Caused by Administrative Division Harm Regional Economic Development in China?

XIANG GAO

(Guangdong University of Foreign Studies)

CHERYL XIAONING LONG

(Xiamen University)

Abstract     Current province-level administrative division in China breaks the distribution of local culture, and many cities are separated from their local culture region to locate in other provinces. These cities encounter potential cultural conflicts with the mainstream culture of the provinces they belong to, and also face various local protectionism barriers with neighboring cities in the province that share the same border and local culture with them. As a result, transaction costs could be higher for them whichever side they trade with, leading to potential harm to their economic development. Using dialect as a proxy for local culture, we find that intra-provincial cultural differences caused by this kind of cultural segmentation can significantly lower economic growth of the separated cities. This negative effect is aggravated by greater local protectionism in neighbor provinces but alleviated by a longer history of the current administrative division. These findings support the hypothesis that cultural segmentation caused by administrative division and local protectionism work together to bring about substantial economic loss.

Key Words     cultural segmentation, regional economic growth, dialect    

JEL Classification     O43, R58, H70

 

Transfer Payment and Inter-regional Disparities of Economic Development

HUSEN AN

HAOBO WU

Nankai University

Abstract     Four mechanisms are theoretically and empirically analyzed here: capital allocation effect market-access effect market crowding effect and income taxation effectthrough which transfer payment policy affects the inter-regional disparities of economic development. When the central government provides enterprises in the poor region with subsidies proportional to their operating profits by the nation-wide income taxation, the gap of inter-regional industry shares would decrease, but the gap of inter-regional market scales which is an important index of regional economic development would increase. However, that kind of subsidy may contribute to a desired goal aiming to reduce the inter-regional inequality of individual welfare, although the total welfare would decrease. We also find that those improvements on terms of inter-regional trade not only reduce the degree of total welfare loss, but also relax the requirement on the optimal subsidy rate under which inter-regional equality on individual welfare should realize.

Key Words     capital allocation effect, marketaccess effect, optimal subsidy rate

JEL Classification     H21, H30, R13

 

Resource Endowment and Public Goods Supply under the Game of Local Interests Subject

JIANBAO CHEN

(Fujian Normal University)

NINGNING QIAO

(Taiyuan Central Subbranch of the Peoples Bank of China )

Abstract     In this paper we first take the resource endowment as key point to develop a two-phase game model to describe resource income pursuit of local government and private interest subjects and theoretically deduce the obvious heterogeneity existence between resource endowment and government’s public goods supply. Then we employ the latest semi-parametric spatial lag regression model to study the related data of prefecture-level cities in China from 2003 to 2008 empirically. We find that the influence of resource endowment on different types of public goods supply has typical non-linear characteristics. Meanwhile the overall impact of resource endowment on the local public goods supply has a positive correlation with the economic development level in some extent.

Key Words     resource endowment, public goods supply, semiparametric spatial lag model

JEL Classification     C51, H41, O41

 

Information Quality, Market Evaluation and Incentive EffectivenessEvidence from the New Fortune’s Analysts Ranking

WEILI WU

(Central University of Finance and Economics)

ZHENG ZHANG

KUNYUAN QIAO

(Peking University)

Abstract     In the sell-side analyst industry, analyst ranking is an important external incentive mechanism. We study the relationship between the ranking results and the quality of information released by sell-side analyst. We find that the quality of information released by star analysts is not better than that of non-star analysts before ranking and the probability of becoming star analysts is positively correlated to their popularity and the market status of the brokerage house of analysts, instead of the quality of the information released by analysts. We conclude that analyst ranking is not as effective as an external incentive currently, which is worth our attention and reflection.

Key words     star analyst, incentive effectiveness, information quality of analyst

JEL Classification     G10, G11, G20

 

Financing Sources, Cash Holdings and R&D SmoothingEvidence from the Biomedical Manufacturing

SHUE WU

(Peking University,Peking University Founder Group)

WEIZHOU ZHONG

(Xi’an Jiaotong University, Huaqiao University)

JIANBO WEI

(Renmin University of China)

ZHENLEI HUANG

(Z-Park Equity Trading Service Co.Ltd.)

Abstract     Based on the data of listed biomedicine firms from 1998 to 2012, this paper makes an analysis on the mechanisms of cash holdings affecting R&D smoothing with system GMM. We find that firms’ R&D investment can always be maintained at a relatively stable level, and the main reason is that firms can use cash holdings to smooth R&D investment. Meanwhile, cash flow will reversely moderate the relationship between cash holdings and R&D smoothing for firms with financing constraints. Relational debt financing will reversely moderate the relationship between cash holdings and R&D smoothing, while transactional debt financing will positively moderate the relationship between cash holdings and R&D smoothing. Stock financing will reversely moderate the relationship between cash holdings and R&D smoothing, and the coefficient is the largest one among all the coefficients of moderators. Financial crisis leads to the improvement of R&D investment of Chinese firms, since cash holdings have hedged the financial crisis, which ensures R&D smoothing can be sustained.

Key Words     cash holding, R&D smoothing, financing constraint

JEL Classification     C12, G31, D21

 

Market Efficiency and Asset Growth Anomaly: An Empirical Investigation between Optimal Investment Effect Hypothesis and Mispricing Hypothesis

QI LIN

Zhejiang University of Finance and Economics

Abstract     In this paper, we use listed companies’ data over the period 20002012 to empirically test the asset growth anomaly in China, and evaluate the predictions of both the optimal investment effect hypothesis we built based on the Q-theory of investment and the mispricing hypothesis. The results show that the asset growth effect does exist in China, and it can be explained by the optimal investment effect hypothesis based on rational investment decision rather than mispricing hypothesis with limits-to-arbitrage, over-investment, and market timing.

Key Words     asset growth anomaly, optimal investment effect hypothesis, mispricing hypothesis

JEL Classification     G12, G14, G32

 

Hukou System ReformIndividuals Flows and Regional DisparitiesBased on the Intertemporal Model of Heterogeneous Individuals Flows

JIANGLI ZHU

(Nanjing University)

ZILIAN LI

Jiangsu Normal University)

Abstract     Hukou system reform will decrease the rate between rural labors and entrepreneurs and lower the immigration costs of rural labors, and eventually change the regional patterns of economy. It will go through three stages: in the first stage Hukou system reform will result in large market region and core-periphery pattern when economy is dispersed; then Hukou system reform will increase the agglomeration forces of large market region when economy is in the core-periphery pattern, and the agglomeration size will be expanded; in the third stage Hukou system reform will reduce the agglomeration force and strengthen the disperse force when core-periphery pattern matures. Meanwhile, improving trade liberalization can help relieve over-agglomeration.

Key Words     Hukou system reform, regional disparities, mobility

JEL Classification     R12, F15, F12

 

Does China’s New Rural Pension Scheme Improve the Life Quality of the Rural Elderly?

YE ZHANG    

ZHIBIAO LIU

(Nanjing University)

LINGGUO CHENG

(Shanghai University of Finance and Economics)

Abstract     In this paper we investigate the effect of China’s New Rural Pension Scheme (NRPS) on the life quality of the rural elderly. Using panel data from 2008 and 2011 waves of the Chinese Longitudinal Healthy Longevity Survey (CLHLS), we adopt an empirical strategy that combines propensity score matching with difference-in-differences approach to correct the potential selection bias. It shows that the NRPS improves enrollees’ life quality, however moderately, in terms of health outcomes, cares and comforts received from the adult children, resilience to face difficulties in life, nutrition taken, and relative position in the family. However, there is no evidence that NRPS reduces the inequality in life quality among the rural elderly across different income subgroups.

Key Words     New Rural Pension Scheme, life quality, rural elderly

JEL Classification     H43, H55, I38

 
 
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