Growing together or growing apart ? a village level study of the impact of the Doha Round on rural China

Most studies of the opening of the Chinese economy focus at the national level. The few existing disaggregated analyses are limited to analyzing changes in agricultural production. The authors use an innovative village equilibrium model that accounts for nonseparability of household production and consumption decisions. This allows them to analyze the impact of trade liberalization on household production, consumption, and off-farm employment, as well as the interactions among these three aspects of household decisions. They use the village model to analyze the impact of price changes and labor demand, the two major pathways through which international trade affects households. Analyzing the impact of trade liberalization for one village in the Jiangxi province of China, the authors find changes in relative prices and outside village employment to have opposite impacts on household decisions. At the household level the impact of price changes dominates the employment impacts. Comparing full trade liberalization and the more limited Doha scenario, reactions are more modest in the latter case for most households, but the response is nonlinear to increasing depth of trade reforms. This is explained by household-specific transaction (shadow) prices in combination with endogenous choices to participate in the output markets. Rising income inequalities are a growing concern in China. Whether trade liberalization allows incomes to grow together or to grow apart depends on whether one accounts for the reduction in consumption demand when household members migrate. Assessing the net effect on the within-village income distribution, the authors find that poorer households that own draught power gain most from trade liberalization. The households that have to rely on the use of own labor for farm activities and are not endowed with traction power, nor with a link to employment opportunities in the prospering coastal regions, have fewer opportunities for adjustment.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Housing&Human Habitats,Access to Markets

China's Integration with the World: Development as a Process of Learning and Industrial Upgrading

The process of development is full of uncertainties, especially if it is a process of transition from a planned economy to a market oriented one. Because of uncertainties and country specificity, development must be a process of learning, selective adaptation, and industrial upgrading. This paper attempts to distill lessons from China's reform and opening up process, and investigate the underlying reasons behind China's success in trade expansion and economic growth. From its beginnings with home-grown and second-best institutions, China has embarked on a long journey of reform, experimentation, and learning by doing. It is moving from a comparative advantage-defying strategy to a comparative advantage-following strategy. The country is catching up quickly through augmenting its factor endowments and upgrading industries; but this has been only partially successful. Although China is facing several difficult challenges -- including rising inequality, an industrial structure that is overly capital and energy intensive, and related environmental degradation -- it is better positioned to tackle them now than it was 30 years ago. This paper reviews the drivers behind China's learning and trade integration and provides both positive and negative lessons for developing countries with diverse natural endowments, especially those in Sub-Saharan Africa.patterns of trade; learning; innovation and growth

CHINA'S ROLE IN WORLD COTTON AND TEXTILE MARKETS

The growth of China's textile industry has been one of the dominant factors shaping world cotton and textile markets in recent years. Since China's accession to the World Trade Organization (WTO) in December 2001, China's textile and apparel (T&A) exports have grown by more than 40 percent and China's cotton consumption has grown by 34 percent. By the end of 2003, China had nearly doubled its share of world T&A exports in less than a decade, to about 21 percent. T&A exports from China and other developing countries are constrained by quotas originally implemented by developed countries under the Multifibre Arrangement (MFA). Under the Uruguay Round's Agreement on Textiles and Clothing (ATC), these quotas have been gradually phased-out since 1995, with complete removal scheduled for the end of 2004. This study incorporates alternatives of the impact of the ATC's implementation in an analysis of China's textile industry, and its impact in turn on China's cotton sector. The study finds that, assuming equilibrium levels of income and exchange rates, alternative ATC scenarios are expected to increase China's net apparel exports, textile production, cotton consumption, cotton production, and cotton imports. This study also finds that these results are somewhat sensitive to estimates of expected efficiency gains around the world.Agribusiness, Industrial Organization,

The social impact of a WTO agreement in Indonesia

Indonesia experienced rapid growth and the expansion of the formal financial sector during the last quarter of the 20th century. Although this tendency was reversed by the shock of the financial crisis that spread throughout Asia in 1997 and 1998, macroeconomic stability has since then been restored, and poverty has been reduced to pre-crisis levels. Poverty reduction remains nevertheless a critical challenge for Indonesia with over 110 million people (53 percent of the population) living on less than $2 a day. The objective of this study is to help identify ways in which the Doha Development Agenda might contribute to further poverty reduction in Indonesia. To provide a good technical basis for answering this question, the authors use an approach that combines a computable general equilibrium (CGE) model with a microsimulation model. This framework is designed to capture important channels through which macroeconomic shocks affect household incomes. It allows making recommendations on specific trade reform options as well as on complementary development policy reforms. The framework presented in this study generates detailed poverty outcomes of trade shocks. Given the magnitude of the shocks examined here and the structural features of the Indonesian economy, only the full liberalization scenario generates significant poverty changes. The authors examine their impact under alternative specifications of the functioning of labor markets. These alternative assumptions generate different results, all of which confirm that the impact of full liberalization on poverty would be beneficial, with wage and employment gains dominating the adverse food price changes that could hurt the poorest households. Two alternative tax replacement schemes are examined. While direct tax replacement appears to be more desirable in terms of efficiency gains and translates into higher poverty reduction, political and practical considerations could lead the Government of Indonesia to choose a replacement scheme through the adjustment of value-added tax rates across nonexempt sectors.Rural Poverty Reduction,Economic Theory&Research,Poverty Assessment,Achieving Shared Growth,Inequality

Housing price volatility and the capital account in China

This repository item contains a working paper from the Boston University Global Economic Governance Initiative. The Global Economic Governance Initiative (GEGI) is a research program of the Center for Finance, Law & Policy, the Frederick S. Pardee Center for the Study of the Longer-Range Future, and the Frederick S. Pardee School of Global Studies. It was founded in 2008 to advance policy-relevant knowledge about governance for financial stability, human development, and the environment.China experienced significant volatility in its housing market from 2005‐2013. Economists analyzing the determinants of volatility in these markets find that the bubble was largely been driven by factors specific to the Chinese economy and Chinese economic policy. In this paper, we examine the extent to which a) short-­‐ term capital flows may have further impacted the prices and volatility in the Chinese housing market and b) whether China’s 2006 Capital Account Regulations (CARs) on foreign purchases of Chinese real estate were effective in reducing the level and volatility of prices in China’s housing markets. According to our OLS baseline model, we find that short-­‐term capital flows from abroad had a modest impact on price increases in the Chinese housing market, but a more significant impact on increasing market volatility. In terms of Chinese 2006 CAR, the measures did not appear to have impact on reducing housing prices, but had a strong impact on reducing volatility in Chinese housing market. The results from a supplementary quantile regression analysis show that hot money magnified the impacts of capital flows on housing prices during upward surges in the housing price. In terms of market volatility, our quantile regressions suggest that the more volatile the housing market became, the larger the impact short-­‐term capital flows had on accentuating such volatility. Furthermore, we find that the 2006 CARs continued to have a strong impact on reducing volatility in the Chinese housing market during the period under study

Labor market distortions, rural-urban inequality, and the opening of China's economy

The authors evaluate the impact of two key factor market distortions in China on rural-urban inequality and income distribution. They find that creation of a fully functioning land market has a significant impact on rural-urban inequality. This reform permits agricultural households to focus solely on the differential between farm and non-farm returns to labor in determining whether to work on or off-farm. This gives rise to an additional 10 million people moving out of agriculture by 2007 and lends a significant boost to the incomes of those remaining in agriculture. This off-farm migration also contributes to a significant rise in rural-urban migration, thereby lowering urban wages, particularly for unskilled workers. As a consequence, rural-urban inequality declines significantly. The authors find that reform of the Hukou system has the most significant impact on aggregate economic activity, as well as income distribution. Whereas the land market reform primarily benefits the agricultural households, this reform's primary beneficiaries are the rural households currently sending temporary migrants to the city. By reducing the implicit tax on temporary migrants, Hukou reform boosts their welfare and contributes to increased rural-urban migration. The combined effect of both factor market reforms is to reduce the urban-rural income ratio dramatically, from 2.59 in 2007 under the authors'baseline scenario to 2.27. When viewed as a combined policy package, along with WTO accession, rather than increasing inequality in China, the combined impact of product and factor market reforms significantly reduces rural-urban income inequality. This is an important outcome in an economy currently experiencing historic levels of rural-urban inequality.Labor Policies,National Urban Development Policies&Strategies,Urban Housing and Land Settlements,Environmental Economics&Policies,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Economic Theory&Research,Urban Housing and Land Settlements,National Urban Development Policies&Strategies

Abstracts : policy research working paper series - numbers 2300-2362

This paper contains abstracts of Policy Research Working Paper series Numbers 2300-2362.Health Economics&Finance,ICT Policy and Strategies,Environmental Economics&Policies,Health Monitoring&Evaluation,Governance Indicators

Motivations and strategies for a real revaluation of the Yuan

Most Western economists and policy makers agree that the Yuan is significantly undervalued and push the Chinese government for a large nominal revaluation of the Yuan. This paper, while surveying recent research on Chinese exchange rate policy, gives some new insights into this issue. Notably, this paper defends that China is not solely responsible for the Yuan’s undervaluation, the Chinese central bank cannot optimally invest an increasing amount of foreign currency reserves, and the Yuan’s nominal revaluation is not the only way to resolve the problem. After having analyzed the advantages and disadvantages of a nominal versus a real revaluation of the Yuan for the Chinese economy, I advocate and analyze, besides a modest nominal revaluation, a multitude of alternative policies to achieve a complete revaluation of the Yuan in real terms, which allows absorbing external disequilibrium while laying down the foundation for the long-term growth of the Chinese economy.Renminbi (RMB), revaluation of the Yuan, foreign exchange reserves, external disequilibrium, measures of macroeconomic adjustment.

The Impact of Yuan/Ringgit on Bilateral Trade Balance of China and Malaysia

The exposure to exchange rates remains an unresolved issue in international trade literature. The issue is particularly relevant to China and Malaysia, whom relaxed their USD pegging the same day in the mid of 2005. Our paper investigates the exchange rate exposure of China-Malaysian bilateral trade balance over the last 20 years using a standard trade balance equation which is a function of local income, foreign income, and the bilateral real exchange rates of yuan/ringgit. Our modeling is somewhat different with the literature where we take into account the structural breaks of the 1997 Asian currency crisis as well as the fixed-exchange rate regime adopted by the Malaysia. With high frequency monthly sample (Jan1990-Jan2008), we documented GARCH effect in the trade model. Taking that into consideration, our result shows that real exchange rates do play a role in the bilateral trade of China-Malaysia. The long run exchange rate elasticity is consistent with the Marshall-Lerner condition. However, the short run J-curve phenomenon is somewhat inconclusive.Exports, Imports, exchange rates exposure, J-curve, structural breaks, GARCH

Estimating the import demand function in the autoregressive distributed lag framework: The case of China

This paper uses the concept of cointegration for empirically analyzing the long-run relationship of China's import demand function. The analysis employs the annual data for the sample period from 1978 to 2009. The purpose of this study is to investigate and explain China's import demand functions and provide a more in-depth analysis of China's import behavior. The autoregressive distributed lag (ARDL) and dynamic ordinary least square (DOLS) techniques were used for estimating the long-run coefficients of price and income elasticities. The empirical results from ARDL bound testing approach and Johansen's method of cointegration provide strong evidence of the existence of a long-run stable relationship among the variables included both in the traditional model and the disaggregated expenditure model of import demand. In addition, the disaggregated import demand model estimated in this paper provides a complete description of the determinants of China's imports, and offers empirical results that are significantly different from those obtained in existing studies (Tang, 2003). This is an important finding for resolving the issue of trade imbalance from the perspective of China's policy formulation.Import Demand Function, China, ARDL Model, Dynamic OLS, Bounds Test