“The Middle-Income Trap 2.0: The Increasing Role of Human Capital in the Age of Automation and Implications for Developing Asia” is the title of the latest paper published by Prof. Dr. Helmut Wagner and Linda Glawe. In this paper, they modify the concept of the middle-income trap against the background of the Fourth Industrial Revolution and future challenges of automation. You can find the whole text here.
CEAMeS Discussion Paper No 15 | 2018
Linda Glawe and Helmut Wagner
Also distributed as SSRN Paper No. 3263458
In our paper, we modify the concept of the middle-income trap (MIT) against the background of the Fourth Industrial Revolution and the (future) challenges of automation (creating the concept of the “MIT 2.0”). In particular, we analyze the impacts of automation, artificial intelligence, and digitalization on the growth drivers of middle-income countries and the MIT mechanism. We show that automation reduces the initial growth push for developing countries and leads to an earlier MIT at the lower end of the middle-income range. In addition, once wages start rising, the necessary shift in the growth strategy (from an export-manufacturing based to an innovation-productivity based growth model) is afflicted with higher requirements, particularly regarding human capital. This in turn, will lead to a higher persistence of the trap and it will become more difficult to break out of it. Thus, the MIT 2.0 will be much more challenging than today’s “normal” MIT. Our findings suggest that improving human capital accumulation, particularly the upgrading of skills needed with the rapid advance of automation, will be key success factors for overcoming the MIT 2.0. Against this background, we elaborate the implications for developing Asia regarding their probability to experience an MIT 2.0 (with a special focus on human capital as well as higher cognitive and information communication technology skills).
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Professor Dr. Helmut Wagner and Michael Murach published a new CEAMeS Discussion Paper. The paper “Avoiding the middle-income trap: Korean lessons for China?” has been written together with Dr. Jungsuk Kim (from Sejong University in Seoul) and Dr. Donghyun Park (from the Asian Development Bank in Manila). The paper analyses and compares the pattern of economic growth and development of China and Korea in the post-war period. It is the first CEAMeS Discussion Paper that was written within an international collaboration. Dr. Donghyun Park also gave a guest lecture at the FernUniversität in Hagen in October 2016. You can find the full text here.
CEAMeS Discussion Paper No 14 | 2018
Michael Murach, Helmut Wagner, Jungsuk Kim and Donghyun Park
We analyze and compare the pattern of economic growth and development of China and South Korea in the postwar period. Geographical proximity and cultural affinity between the two countries, as well as the key role of the developmental state in the economies of both countries, suggests that an analytical comparison would be a meaningful and valuable exercise. Furthermore, Korea is one of the few economies that jumped from middle income to high income in a short period, and thus offers potentially valuable lessons for China. The Asian giant moved from low income to middle income very quickly but now faces the challenge of graduating to high income. In this paper, we empirically assess the main drivers of economic growth in China and Korea, and then identify the time period when Korea was at a similar state of structural change as today’s China. In addition, we examine the trend and pattern of Korea’s economic growth from that point on. We will analyze and compare key reforms that promoted growth in the two countries. Lastly, we sift through our empirical evidence to assess the prospects for China to follow Korea’s footsteps in transitioning from middle income to high income relatively quickly.
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In: International Economic Review, Volume 59 (August 2018), Issue 3, Pages 1209-1262
This article identifies a “border” effect in the absence of a border. The finding that trade between east and west Japan is 23.1% to 51.3% lower than trade within both country parts is established despite the absence of an obvious east–west division due to historical borders, cultural differences, or past civil wars.
Ayşe İmrohoroğlu and Kai Zhao
In: Journal of Monetary Economics, Vol 96, June 2018, Pages 33-52
A general equilibrium model that properly captures the risks in old age, the role of family insurance, changes in demographics, and the productivity growth rate is capable of generating changes in the national saving rate in China that mimic the data well.
Meredith Crowley, Ning Meng and Huasheng Song
In: Journal of International Economics, Vol. 114, September 2018, Pages 96-115
Crowley et al. estimate how a rise in uncertainty about future tariff rates impacts firm decisions to enter into and exit from export markets. Using Chinese customs transactions between 2000 and 2009, they exploit time-variation in product-level trade policy and find that Chinese firms are less likely to enter new foreign markets and more likely to exit from established foreign markets when their products are subject to increased trade policy uncertainty.
Hongyi Chen, Michael Funke, Ivan Lozev and Andrew Tsang
BOFIT Discussion Papers 3/2017
This paper discusses the macroeconomic effects of China’s informal banking regulatory tool “win-dow guidance,” introduced in 1998. Using an open-economy DSGE model that includes the com-mercial banking sector, we study the stabilizing effects of this non-standard quantitative monetary policy tool and the implications of quantity-based vs. price-based monetary policy instruments for welfare. The analyses are relevant to the current overhaul of Chinese monetary policy.
In the latest edition of the “ifo Schnelldienst”, which deals with China’s “Made in China 2025” policy, Antonia Reinecke and Professor Hans-Jörg Schmerer contribute an own article. They discuss China’s proposed way from the “Workbench of the World” to a high-technology leader as well as the opportunities and risks involved for current leading high-tech exporting economies. You can find and download the current issue and the respective article following this link.
On Thursday 9 August Professor Rongrong Sun from the Henan University in China visited the FernUniversität in Hagen and the Center for East Asia Macroeconomic Studies to present her paper “What Drives Household Borrowing and Credit Constraints? Evidence from China”. During the two hours of her presentation Professor Sun talked about her current research and discussed the results with the attending participants. In the end, the meeting was a success for everyone. CEAMeS likes to thank Professor Sun for taking her time to come to Hagen and for her very interesting talk.
The Center for East Asia Macroeconomic Studies is very honored to welcome Prof. Rongrong Sun from the Henan University, China on the 9th of august in Hagen. Prof. Sun will present her current research as part of her talk called “What Explains Household Borrowing and Credit Constraints? Evidence from China” (see also abstract below). After the talk all present will have the possibility to ask questions or discuss the findings that Prof. Sun presented.
Further information are available at the homepage of the chair of Macroeconomics from the FernUniversität (you can find it here).
This paper uses the three rounds of the CHFS survey (2011and 2013) to examine the determinants of household credit demand and credit constraints in China. In 2011, about the half of the households that had a desire of bank credits were facing credit constraints, which declined to 34 percent in 2013. In general, the credit market participation rate in China is moderate, 14 percent in 2013, which is partly accountable to troublesome application procedures and financial illiteracy among households.
The empirical estimation results suggest that income, wealth and education qualifications are the main factors driving credit market participation, while high income, high wealth and more education lower credit constraints. The family size, the home ownership and being self-employed have positive significant impact on both.
The likelihood of being credit constrained and the chance of obtaining a loan, while being unemployed significantly increases the likelihood of being credit constrained only.
In China, the likelihood of being credit constrained peaks at 33 years old.
Moreover, the results show that people in the western region are less likely to be credit constrained on average. This implies the existence of regional imbalance in financial developments in China, despite the current general credit ease.
CEAMeS Discussion Paper No 13 | 2018
China is currently experiencing a structural change toward tertiarization and an implied growth slowdown associated with it. The paper investigates whether this growth slowdown is merely cyclical or a negative trend, and further what China is doing or should do to avoid falling into a “middleincome trap,” a problem many emerging economies have experienced in recent decades. The pitfalls of the current “soft” rebalancing policy in China are analyzed in the context of this development.
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Prof. Helmut Wagner published his paper “Structural change, rebalancing, and the danger of a middle-income trap in China” in the BOFIT Policy Brief series (BOFIT Policy Brief 2018 No. 6). He presented a first version of this paper early this year, when he attended an ECB-Conference in Helsiniki, Finland as the Keynote-Speaker. You can find the paper and an abstract here.
The paper is also available as CEAMeS Discussion Paper No. 13 (you can find it here).
With Linda Glawe, Antonia Reinecke and Michael Murach three CEAMeS-researchers will each attend a couple of conferences and workshops in the next weeks, to present their latest research results. Miss Glawe and Mister Murach will participate in the “2018 China Meeting of the Econometric Society” in Shanghai, China (June, 15-17) and Miss Reinecke and Miss Glawe are going to take part in the “2018 Asian Meeting of the Econometric Society” in Seoul, Korea (June 21-23). On the 23rd and 24th of June Michael Murach will attend the “4th HenU/ INFER Workshop on Applied Macroeconomics” hosted by the Henan University in Kaifeng, China.
“The Deep Determinants of Economical Development in China – A Provincial Perspective” is the title of the latest CEAMeS Discussion Paper written by Linda Glawe and Prof. Helmut Wagner. You can find an abstract and the paper on our website. Just follow this link – CEAMeS Discussion Paper No 12.