SOURCES OF BUSINESS CYCLE FLUCTUATIONS: COMPARING CHINA AND INDIA

This paper investigates the sources of business cycle fluctuations in China and India since 1978/81. Under the framework of a standard neoclassical open economy model with time-varying frictions (wedges), we study the relative importance of efficiency, labor, investment and government consumption wedges on the business cycle phenomenon. This enables us to contrast and compare the two countries’ experience in a way remarkably different from previous studies. The results for both China and India show that efficiency wedge is the main source of economic fluctuations, while the investment wedge and government consumption wedge played minor roles in generating business cycles.Business cycle fluctuations; Business cycle accounting; China; India

What is the Real Size of China's Economy?

On December 20, 2005, China's National Bureau of Statistics adjusted China's nominal GDP by CNY 2.3 trillion. The bulk of this upward adjustment was attributed to improved coverage of value-added by services. The service industry now makes-up 40 percent of GDP. Based on previous studies and other observations, this paper point out that there is still significant under-reporting of the service industry and, hence China's GDP is likely underestimated. We find a plausible share of service industry in GDP to be in the range of at least 45 to 55 percentChina, National Account

Financial Sector Development, FDI and Economic Growth in China.

The economics-literature, drawing on endogenous growth theory, suggests that the level of financial sector development may influence foreign direct investment and its impact on the diffusion of technology in the host country, thereby increasing the rate of economic growth. Little attention, however, has been devoted to confirm or reject this link for China. This paper fills the gap by including measures of financial sector development in this growth regression. The Generalised Method of Moments system estimation is applied to data for 28 Chinese provinces over the period 1986-2003. We show that the interaction between foreign direct investment and indicators measuring the degree of market oriented financing enhance economic growth.financial development, foreign direct investment, economic growth, China

Environmental Policy and the Location of Foreign Direct Investment in China.

This paper introduces an environmental policy variable, i.e. the provincial pollution levy paid by an average firm, and measure its impact on the foreign investors' location decisions over the 1987 to 1998 period. We argue that less developed regions in China are more inclined to sacrifice environmental policies as an instrument to attract foreign direct investment (FDI). National level results show that stringent environmental policies have insignificant effect on foreign investors' location decision, and that transportation, economic growth, and regional location matters more. At the provincial level, stringent environmental policies reduce FDI in the less developed regions.foreign direct investment, environmental policy

IS CHINA DIFFERENT? A META ANALYSIS OF THE EFFECT OF FOREIGN DIRECT INVESTMENT ON DOMESTIC FIRMS

Empirical evidence suggests that China has benefited from foreign direct investment (FDI). However, an important question that remains unanswered is whether China has benefited more from FDI than other countries in general and other transition and developing countries in particular. This paper investigates this issue by performing a Meta-analysis on a sample of 67 country-specific studies yielding 125 observations that have gauged the nexus between FDI and measures of income growth. The results show that studies on China report relatively high t-values and thus indicate that China may have benefited more than other countries from FDI.Meta-analysis; Foreign direct investment; Economic growth; China

Spillover Effects among the Greater China Region Stock Markets

This paper explores the linkages between the different stock markets in the Greater China region. Cointegration tests indicate that the three markets are not cointegrated. A vector-autoregressive multivariate conditional volatility model that accounts for asymmetric volatility effects is used to model the mean and volatility processes of the different stock markets. The empirical findings indicate spillover effects in both mean and variance between the markets. Both China and Hong Kong are effected by mean spillover effects from Taiwan, while Hong Kong and Taiwan show signs of a feedback relationship in their volatility processes. The later markets also show clear signs of asymmetric volatility effects, while China's market seems to follow a symmetric volatility path. Overall, the Mainland China market is much less interdependent with the other two markets, whereas Taiwan and Hong Kong show clear bidirectional spillover effects. Furthermore, the volatility persistence is strong in all three markets, and especially so in the Mainland China stock market, where the half-life of innovations in the volatility process is close to 40 periods.Stock Markets, Greater China, Cointegration, Causality, Multivariate EGARCH

CENTRAL BANK FINANCIAL STRENGTH AND THE COST OF STERILIZATION IN CHINA

This paper investigates the current monetary policy regime of China’s Central Bank, the People’s Bank of China (PBoC). This is done from the specific viewpoint of PBoC financial strength and the cost of its monetary policy instruments. The result shows that PBoC is constrained by the costs of its monetary policy instruments. PBoC tend to use less costly but market-distorting instruments such as deposit interest rate cap and reserve-ratio requirements, rather than more market-oriented but more costly instruments such as central bank note issuance. These costs remain under control today, but may rise in the future as PBoC accumulates more foreign assets. This, in turn, will jeopardize the Chinese monetary authority’s capability to maintain price stability.Central banking; Monetary policy; China

The Economic Impact of Globalization in Asia-Pacific - The Case of The Flying Geese

In Pacific Asia, globalization has resulted in rapidly growing international flows of goods, portfolio capital, and direct investments. At the same time, several countries shift from a command to market economy. Against this background, we analyze the perhaps most popular model used to depict the process of economic integration and development in Pacific Asia, the flying geese pattern of shifting comparative advantage. Our point of departure is that economic and other social processes are best understood in relation to one another. We confine ourselves to intraregional patterns of trade and investment but locate them within the broader framework of global trends.Asia, globalization, Flying Geese Model, Comparative Advantage

ECONOMIC GROWTH AND GROWTH LINKAGES IN CHINA 1994-2003

This paper investigates to what degree neighboring Chinese provinces were linked to each other in terms of economic growth, income levels, and foreign direct investment during the period 1994-2003. When looking at mainland China, we find that both the level of income and the rate of income growth in a province depend on developments in neighboring provinces. However, we find no evidence of any positive interdependence between growth in rich coastal provinces and their immediate inland neighbors. This suggests that there has been little harmonization in economic growth rates between these regions, and that the immediate hinterland of the coastal growth centers might be bypassed as China’s manufacturing sector is moving west.Domestic integration; growth interdependence; China’s Economy

Mending vulnerabilities to isolation: how Chinese power grows out of the development of the Belt and Road Initiative

The Belt and Road Initiative is gradually moving China and its economy beyond the reach of Western sanctions and reducing the economic impact that a US naval blockade could have. Christer Ljungwall and Viking Bohman contend that, without a measured Western response, this could increase the likelihood of Chinese aggression in regional territorial disputes