“China’s Lost Generation: Changes in beliefs and their intergenerational transmission”

“China’s Lost Generation: Changes in beliefs and their intergenerational transmission”

Gerard Roland and David Y. Yang

NBER Working Paper No. 23441

China’s Cultural Revolution suspended regular higher education for an entire decade (1966-1976), creating the so-called Lost or Delayed Generation. Growing up during that period the Delayed Generation was deprived of higher education opportunities at an age when youths would typically consider attending college. This shock allows Roland and Yang to examine if differences in the opportunity cost of attending university persistently shaped citizens’ beliefs on whether efforts pay off in determining success. Moreover, they investigate to what extent the changed beliefs may affect citizens’ behavior, particularly their decisions to invest in their children’s education and to transmit such beliefs to the next generation.

„A Real Estate Boom With Chinese Characteristics”

„A Real Estate Boom With Chinese Characteristics”

Edward Glaeser, Wei Huang, Yueran Ma, and Andrei Shleifer

In: Journal of Economic Perspectives Vol. 31, No. 1, 93-116

Is the Chinese real estate boom a bubble? This question takes the center stage in the paper of Glaeser et al. They approach it by analyzing the determinants of demand and supply of housing in China. Further they use the great housing boom in the United States as a benchmark to put the Chinese boom into perspective and highlight its unique features. Finally they conclude, that a housing crash isn’t inevitable, but that the outcome depends largely on the decisions that will be made by the Chinese government.

„Human Capital and China’s Future Growth”

„Human Capital and China’s Future Growth”

Hongbin Li, Prashant Loyalka, Scott Rozelle, and Binzhen Wu

In: Journal of Economic Perspectives Vol. 31, No. 1, 25-48

Li et al. consider the sources and prospects for economic growth in China with a focus on human capital. They present a short overview about the Chinese hukou-policy and its development. By using an ordinary least square regression model, the typical relationship between human capital and output in different economies around the world is shown. In the end they present some policy suggestions of what China can do today to further raise its human capital up on to the standard of high-income countries.

„From ‚Made in China‘ to ‚Innovated in China’?: Necessity, Prospect and Challenges”

„From ‚Made in China‘ to ‚Innovated in China’?: Necessity, Prospect and Challenges”

Shang-Jin Wei, Zhuan Xie, and Xiaobo Zhang

In: Journal of Economic Perspectives Vol. 31, No. 1, 49–70

The Chinese economy is at a crossroad. Structural factors in the form of less-favorable demographics and a higher cost of labor imply a lower potential growth rate. To achieve robust future growth structural reforms are a must. Therefore Wei et al. study three questions. First, how strong is the Chinese’s national investment in research and development (R&D). Second, what is the growth of innovation by Chinese firms. Third, are there significant resource misallocations in the innovation space. They find that Chinese firms have demonstrated the capacity to become more innovative in response to wage pressure and global opportunities. Further they show that government subsidies tend to favor state-owned firms, and yet both domestic private sector firms and foreign-invested firms are more effective in converting investment in R&D to innovation outcomes as measured by patents.

“Tariffs and the Organization of Trade in China”

“Tariffs and the organization of trade in China”

Loren Brandt, Peter M. Morrow

in: Journal of International Economics Vol. 104, 85-103
Beginning in the mid-1990s, China started a program of tariff liberalization that saw average tariffs fall from over 40 percent in 1995 to less than 10 percent in 2001. This paper examines the impact of China’s falling import tariffs on the organization of its exports between ordinary and processing trade.

“The Great Housing Boom of China”

“The Great Housing Boom of China”

Kaiji Chen, Yi Wen

in: American Economic Journal: Macroeconomics, Vol. 9, No. 2, 73-114

Real housing prices outpacing income, a high vacancy rate, and a high rate of return to capital: this describes the current and puzzling situation on the Chinese real estate market. Chen and Wen present a model that interprets China’s housing boom as a rational bubble and fits with many salient features of the Chinese economy.

“China’s GDP Growth May Be Understated”

“China’s GDP Growth May Be Understated”

Hunter Clark, Maxim Pinkovskiy. Xavier Sala-i-Martin

NBER Working Paper No. 23323

Clark et al. discuss the concerns about the quality of China’s official GDP statistics and whether Chinese growth is under- or overstated by those statistics. Therefore they exploit nighttime lights to compute the optimal weights for various economic indicators to a best unbiased predictor of Chinese growth rates.

“Industrial Policies for Avoiding the Middle-income Trap: A New Structural Economics Perspective”

“Industrial Policies for Avoiding the Middle-income Trap: A New Structural Economics Perspective”

Justin Yifu Lin

in: Journal of Chinese Economic and Business Studies Vol. 15, No. 1, 5-18

In this paper Lin presents a manual how middle-income countries can avoid the middle-income trap by using limited resources to facilitate technological innovation and industrial upgrading. Thus, these economies can overcome coordinating issues and inherent externalities during the process of structural transformation.

Most important papers related to East Asia

Prof. Dr. Helmut Wagner

1. On “Implications of Structural Change, Middle-Income-Trap and ,Rebalancing’ in China”:

  • “The Building Up of New Imbalances in China: The Dilemma with ‘Rebalancing”, ceames-DP No. 3, forthcoming in: International Economics and Economic Policy, vol. 14 (2017); ( already published online Sept. 2016: in IEEP; DOI 10.1007/s10368-016-0360-4 )
  • “The Middle-Income Trap – Definitions, Theories and Countries Concerned: A Literature Survey” (Co-author: Linda Glawe), in: Comparative Economic Studies, vol. 58, pp. 507-538 (2016)
  • “Challenges to China’s Policy: Structural Change”, in: Comparative Economic Studies, vol. 55, 2013, pp. 721-736.
  • “Structural Change and Mid-Income Trap – Under which conditions can China succeed in moving towards higher income status?” forthcoming in: European Journal of Comparative Economics, vol. 12(4), 2015.
  • “Effects of Structural Change on Economic Growth and Shock Absorption Capability in China”, unpublished Working Paper, 2015. (Präsentiert im Rahmen der “14th Annual Conference of the European Economics and Finance Society (EEFS)”, Brüssel, Belgien, 11.– 14. Juni 2015.)

2. On “The Relevance of Improving Governance Structures for China – Lessons from other countries”:

  • “Fiscal Issues in the New EU-Member Countries – Lessons for Asian Economic and Monetary Cooperation?”, (in chinese translation) in: World Economic Papers, Issue 2, 2007.
  • “The impact of European integration on institutional development” Schönfelder / Wagner, MPRA Paper No. 63392, 2015.
  • “A Structural Approach to Financial Stability: On the Benefical Role of Regulatory Governance”, in: Journal of Governance and Regulation, vol.2, issue 1, 2013, (Co-author: B. Mohr), pp. 7-26.
  • “Is the European Monetary Union Sustainable? The Role of Convergence“, In: S. Kaji and E. Ogawa (eds.), Who will provide the Next Financial Model?: Asia‘s Muscle and Europe‘s Financial Maturity, Springer Japan 2013, pp. 183-218.

3. On “Creating and fighting asset price booms”:

  • “The causes of the recent financial crisis and the role of central banks in avoiding the next one”, in International Economics and Economic Policy, vol. 7, No. 1, 2010, pp. 63-82.
  • “Monetary Policy and Asset Prices: More Bad News for ‘Benign Neglect’ “, (Co-author: W. Berger, F. Kißmer), in International Finance, Vol. 10 No. 1, 2007, pp. 1-20.

4. On “Asian Crisis”:

  • “Emerging-Market-Crises – Well-known Models and New Explanations”, (“Emerging Market-Krisen: Bekannte Modelle und neue Ansätze”) in: List Forum für Wirtschafts- und Finanzpolitik, vol.27(2), 2001, pp. 178-193.
  • “Globalization, Financial Stability and Monetary Policy”, in: Empirica, vol. 31, no. 2-3, 2004.
  • “Interdependent Expectations and the Spread of Currency Crises”, in: IMF Staff Papers, vol. 52, no. 1, 2005, pp. 41-54.

5. On “Stability Policy in Japan”:

  • “Alternatives of Disinflation and Stability Policy. Costs, Efficiency and Implementability: A Comparison between Japan and West Germany”, in: Bank of Japan. Monetary and Economic Studies, vol. 7, no. 1, 1989, pp. 41 – 98.

6. On „Transition Countries In General”:

  • “Central Banking in Transition Countries”, in: Eastern European Economics, vol. 38, no. 4, 2000, pp. 6-53.
  • “Controlling Inflation in Transition Economies: On the relevance of central bank independence and the right nominal anchor”, in: Atlantic Economic Journal, vol. 27, no. 1, 2000, pp. 60-70.
  • “Central Bank Independence and the Lessons for Transition Economies from Developed and Developing Countries”, in: Comparative Economic Studies, vol. 41, no. 4, 1999, pp. 1-22.
  • “La banca central en los países en transición”, in: CEMLA Boletín, vol. XLV, 1999, no. 2, pp. 49-75.
  • “Central Banking in Transition Countries”, IMF Working Paper WP/98/126, International Monetary Fund, Washington, D.C., 1998.
  • “Transformation Process and the J-Curve Problem”, in: International Journal of Social Economics’, vol. 23, no. 10/11, 1996, pp. 73 – 87.
  • “Wachstum und Entwicklung. Theorie der Entwicklungspolitik.”, Munich and Vienna: Oldenbourg Verlag, 2nd ed., 1997.
  • “Reconstruction of the Financial System in East Germany: Description and Comparison with Eastern Europe”, in: Journal of Banking and Finance, vol. 17, 1993, pp. 1001 – 1019

“China’s Rebalancing-Dilemma”

Helmut Wagner

in: One Belt and One Road - China and the World, forthcoming, Proceedings of the International Conference held in 2016 at Frankfurt University, Konfuzius-Institut Frankfurt (2017).

Rebalancing means the correction of imbalances built up in the past. After having experienced a great growth success story over the past three decades, China recently announced a rebalancing of its development process. The term “rebalancing” was explicitly used by the Chinese government in its 12th five-year plan (in 2011) and repeated and confirmed in the 13th five-year plan (in 2016). There it was understood as a necessary shift of the Chinese economy from an investment- and export-driven towards a more consumption- and inward-driven growth path. This is a typical development or restructuring process in middle-income countries where the marginal profitability of industrial sector productions starts to decline (against the background of increasing wages in manufacturing and increasing social, economic and ecological side-costs or imbalances of industrialization; see Wagner 2013). Hence there is then a need to initiate the process of de-industrialization or tertiarization (see, ibid). The mentioned side-costs or imbalances in China were already early (in the mid-00s) denounced in country reports of the IMF and other international organizations associated with the call on China to rebalance its economy.

I shall argue that China currently is hit by multiple rebalancing challenges. First, it has to correct old imbalances built up during the past decades during the industrialization process which obviously has been “overdone”. Second, in the process of correcting the old imbalances, “wrong” political decisions (decisions which appeared to be less costly in the short run) have been made that produced new imbalances which have eventually driven the country into a dangerous vicious circle of always producing new needs for rebalancing.

“Institutional Quality, Trade Openness, and Financial Sector Development in Asia: An Empirical Investigation” by Thai-Ha Le, Jungsuk Kim & Minsoo Lee

Thai-Ha Le, Jungsuk Kim & Minsoo Lee

published in:
Emerging Markets Finance & Trade, 52:1047–1059, 2016

We examine the determinants of financial sector development in Asia and the Pacific from 1995 to 2011. In terms of economic growth, over the last twenty years the region has outperformed other parts of the world and has also experienced major developments in its traditionally bank-dominated financial system since the 1997 Asian financial crisis. We apply the dynamic generalized method of moments to a panel data set of twenty-six economies in the region. The estimations were done for the whole panel as well as for subpanels of developed and developing economies. We find that better governance and institutional quality foster financial sector development in developing economies while economic growth and trade openness are key determinants of financial depth in developed economies.

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“Effectiveness of Macroprudential Policies in Developing Asia: An Empirical Analysis” by Minsoo Lee, Ruben Carlo Asuncion & Jungsuk Kim

Minsoo Lee, Ruben Carlo Asuncion & Jungsuk Kim

published in:
Emerging Markets Finance & Trade, 52:923–937, 2016

Before the 2008 global financial crisis, bank monitoring focused primarily on risks to individual institutions, or what are generally referred to as prudential risks. Regulators thus failed to consider that a buildup of macroeconomic risks and vulnerabilities could pose systemic risk to the financial sector. The global credit crisis showed the inadequacy of purely prudential surveillance systems and the need for bank supervisors to better detect the buildup of macroeconomic risks before they can threaten the financial system. This article presents an empirical framework for analyzing how effectively macroprudential policies control credit growth, leverage growth, and housing price appreciation. Two significant findings emerge. Broadly, macroprudential policies can indeed promote financial stability in Asia. More specifically, different types of macroprudential policies are proved effective for different types of macroeconomic risks.

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“China’s growth model and potential risks for world trade”

Antonia Reinecke and Hans-Jörg Schmerer

in: Reinecke, Antonia, Hans-Jörg Schmerer, Carsten A. Holz, Frederik Kunze, Torsten Windels, Horst Löchel and Markus Taube,
"China’s Growth Model in Trouble: How Great is the Risk for the World Economy?", ifo Schnelldienst 69 (07), 2016, pp. 5-20.

The year began with a glut of bad news about economic developments in China. What are the implications for Germany and Europe? In view of the overcapacity that has accumulated, Antonia Reinecke and Hans-Jörg Schmerer, FernUniversität Hagen, see a shift away from China’s established growth strategy as inevitable. The world economy‘s dependence on China, however, should not be overestimated.

“Structural Change and Mid-Income Trap – Under which conditions can China succeed in moving towards higher income status”

Helmut Wagner

in: European Journal of Comparative Economics, Vol. 12, No. 2, Dec. 2015, pp. 165 – 188. [pdf]

After two decades of very high economic growth rates, China has now reached the so-called mid-income range or ‘trap’, i.e. a development level where it has to expect slower economic growth rates (a ‘New Normal’) for the future. Associated with that is a structural change towards tertiarization which requires some fundamental rebalancing of China’s economy. Overcoming this mid-income trap and further catching up to the most advanced countries in the world is a very demanding task. In order to succeed China has to efficiently manage the mentioned rebalancing (structural change) process towards tertiarization and to undertake many fundamental structural reforms.