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on China |
| By: | Carsten A Holz (Hong Kong University of Science & Technology) |
| Abstract: | Views of the future China vary widely. While some believe that the collapse of China is inevitable, others see the emergence of a new superpower that increasingly poses a threat to the U.S. This paper examines the economic growth prospects of China over the next two decades. Extrapolating past real GDP growth rates into the future, the size of the Chinese economy surpasses that of the U.S. in purchasing power terms between 2012 and 2015; by 2025, China is likely to be the world's largest economic power by almost any measure. The extrapolations are supported by two types of considerations. First, China’s growth patterns of the past 25 years since the beginning of economic reforms match well those identified by standard economic development and trade theories (structural change, catching up, and factor price equalization). Second, decomposing China’s GDP growth into growth of labor and other variables, the near-certain information available today about the quantity and quality of Chinese laborers through 2015, if not several years after, allows inferences about future GDP growth. Short of some cataclysmic event, demographics alone suggests China’s continued economic rise. If talent is randomly distributed in the world population and if agglomeration of talent is important, then the odds are strongly in China’s favor. |
| Keywords: | economic growth, growth accounting, growth forecasts, development theories, human capital formation, education (all: China) |
| JEL: | O1 O10 O11 O4 O40 O47 O53 J11 O3 I21 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0512002&r=cna |
| By: | Loren Brandt (University of Toronto); Carsten Holz (Hong Kong University of Science & Technology) |
| Abstract: | Prices differ across space: from province to province, from rural (or urban) areas in one province to rural (or urban) areas in another province, and from rural to urban areas within one province. Systematic differences in prices across a range of goods and services in different localities imply regional differences in the costs of living. If high- income provinces also have high costs of living, and low-income provinces have low costs of living, the use of nominal income measures in explaining such economic outcomes as inequality can lead to misinterpretations. Income should be adjusted for costs of living. We are interested in the sign and magnitude of the adjustments needed, their changes over time, and their impact on economic outcomes in China. In this article, we construct a set of (rural, urban, total) provincial- level spatial price deflators for the years 1984-2002 that can be used to obtain provincial-level income measures adjusted for purchasing power. We provide illustrations of the significant effect of ignoring spatial price differences in the analysis of China’s economy. |
| Keywords: | spatial deflators, inequality, income differences, regional absolute price levels, China |
| JEL: | D3 D31 C43 D63 O18 O53 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0512001&r=cna |
| By: | Mary Amiti (International Monetary Fund and CEPR); Beata Smarzynska Javorcik (The World Bank and CEPR) |
| Abstract: | The authors examine the determinants of entry by foreign firms using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers. |
| Keywords: | Infrastructure, Private sector development, Transition, International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3564&r=cna |
| By: | Maurice Catin (CRERI, University of South Toulon-Var, France); Xubei Luo (The World Bank); Christophe Van Huffel (CRERI, University of South Toulon-Var, France) |
| Abstract: | Rapid development, a widening regional gap, and growing concentration of activities have characterized the Chinese economy since the reforms in the late 1970s. This paper examines the spatial disparities of the economic concentration in different stages of development from a geographic approach in the case of China. It aims at offering empirical supports on (1) how concentrated the economic activities are; (2) what factors determine the economic concentration; and (3) whether this concentration differs in the coastal and inland regions. The results show that the high-technology industries highly concentrate in the coastal provinces. The limited diffusion of the labor intensive activities within the coastal region does not significantly modify the major trend of the location and specialization of the industries in the inland region, and does not contribute to narrowing the regional disparities. The paper argues that in order to stimulate the geographic diffusion of economic activities to the inland region, it is important to appropriately alleviate internal migration control, reduce unnecessary state intervention, and further encourage domestic market integration. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3706&r=cna |
| By: | Carsten A Holz (Hong Kong University of Science & Technology) |
| Abstract: | Data on physical capital are an indispensable part of economic growth and efficiency studies. In the case of China, economy-wide fixed asset series are usually derived by aggregating gross fixed capital formation (net of depreciation) over time, and sectoral/ownership-specific series by correcting the limited official fixed asset data available. These procedures, to varying degrees, ignore that (i) gross fixed capital formation does not equal investment, (ii) investment does not equal the value of fixed assets newly created through investment, (iii) depreciation is an accounting measure that bears no necessary relation to changes in the production capacity of fixed assets, (iv) official fixed asset data, where available, incorporate significant revaluations in the 1990s, and (v) “net fixed assets” do not measure the contribution of fixed assets to production. This paper derives economy-wide fixed asset values for 1953-2003, correcting for these shortcomings. It uses both the traditional, cumulative approach and a new, so far unexplored method of combining economy-wide depreciation values and an economy-wide depreciation rate to directly yield economy-wide fixed assets. The derived fixed asset time series are evaluated in a comparison with each other as well as with series in the literature, leading to the recommendation of a specific choice of fixed asset time series. |
| Keywords: | Capital, investment, national income accounting, production function estimations, Chinese statistics, fixed assets, measurement of economic growth |
| JEL: | E22 C80 D24 O47 P23 P24 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0512001&r=cna |
| By: | Marijke Kuiper (Agricultural Economics Research Institute (LEI) Wageningen UR); Frank van Tongeren (Agricultural Economics Research Institute (LEI) Wageningen UR) |
| Abstract: | 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. |
| Keywords: | Rural development, International economics |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3696&r=cna |
| By: | Magnus Lindelow (The World Bank); Adam Wagstaff (The World Bank) |
| Abstract: | The most basic argument for insurance is that it reduces financial risk. But since insurance opens up new opportunities for consuming expensive high-technology care which permits health improvements that are valued by the insured, and because in many settings the provider is able and has an incentive to exploit the informational advantage he has over the patient, it is not immediately obvious that insurance will in practice reduce financial risk. The authors analyze the effect of insurance on the probability of an individual incurring "high" annual health expenses using data from three household surveys-one a cross-section survey, the other two panel surveys. All come from China, a country where providers have until recently largely been paid fee-for-service (often according to a schedule that encourages the overprovision of high-technology care and the underprovision of basic care) and who are only lightly regulated. The authors define annual spending as "high" if it exceeds 5 percent of average income in the sample and as "catastrophic" if it exceeds 10 percent of the household's own per capita income. The estimates of the effect of insurance on financial risk allow for the possible endogeneity of health insurance in the panel datasets by allowing for a time-invariant fixed effect capturing unobserved risk that may be correlated with insurance status, and in the cross-section dataset by using instrumental variables, where availability of and eligibility for health insurance are used as instruments. The results suggest that during the 1990s China's government and labor insurance schemes increased financial risk associated with household health care spending, but that the rural cooperative medical scheme significantly reduced financial risk in some areas but increased it in others (though not significantly). From the results, it appears that China's new health insurance schemes (private schemes, including coverage of schoolchildren) have also increased the risk of high levels of out-of-pocket spending on health. Where the authors find evidence of health insurance increasing the risk of "high" out-of-pocket expenses, the marginal effect is of the order of 15-20 percent; in the case of "catastrophic" expenses, it is even larger. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3741&r=cna |
| By: | Magnus Lindelow (The World Bank); Adam Wagstaff (The World Bank) |
| Abstract: | Health shocks have been shown to have important economic consequences in industrial countries. Less is known about how health shocks affect income, consumption, labor market outcomes, and medical expenditures in middle- and low-income countries. The authors explore these issues in China. In addition to providing new evidence on the general impact of health shocks, they also extend previous work by assessing the extent of risk protection afforded by formal health insurance, and by examining differences in the impact of health shocks between the rich and poor. The authors find that health shocks are associated with a substantial and significant reduction in income and labor supply. There are indications that the impact on income is less important for the insured, possibly because health insurance coverage is also associated with limited sickness insurance, but the effect is not significant. They also find evidence that negative health shocks are associated with an increase in unearned income for the poor but not the non-poor. This effect is however not strong enough to offset the impact on overall income. The loss in income is a consequence of a reduction in labor supply for the head of household, and the authors do not find evidence that other household members compensate by increasing their labor supply. Finally, negative health shocks are associated with a significant increase in out-of-pocket health care expenditures. More surprisingly, there is some evidence that the increase is greater for the insured than the uninsured. The findings suggest that households are exposed to considerable health-related shocks to disposable income, both through loss of income and health expenditures, and that health insurance offers very limited protection. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3740&r=cna |
| By: | Adam Wagstaff (The World Bank); Shengchao Yu (The World Bank Office Beijing, China) |
| Abstract: | The literature contains few impact evaluations of health sector reforms, especially those involving broad and simultaneous changes on both the demand and supply sides of the sector. This paper reports the results of a World Bank-funded health sector reform project in China known as Health VIII. On the supply-side, the project combined infrastructure investments (especially at the township level) with improved planning and management, including a referral system between township health centers and county hospitals, and interventions aimed at improving the effectiveness and quality of care, including the introduction of clinical protocols and essential drug lists. On the demand-side, the project sought to resurrect community health insurance, and to introduce a safety net for the very poor to provide them with financial assistance with their health care expenses. The evaluation reported here concerns just one of the project's seven provinces, namely Gansu, the reason being that no suitable data are available to undertake a rigorous evaluation in all provinces. This paper makes use of a panel dataset collected for quite another purpose but whose timing (just around the time the project started and four years later) and location (covering both project and non-project counties) makes it well-suited to the task. The paper compares estimates obtained using a variety of different estimators, including naïve single differences (before and after, and with and without the project), and differences-in-differences, adjusting for heterogeneity through both regression and matching methods. The results suggest that it makes a difference to the estimated impact of Health VIII which estimator is used, with the naïve single differences producing often markedly different estimates from the preferred approach of combining difference-in-differences with matching. The results further suggest that Health VIII has been mostly successful in its goals. The preferred estimator suggests that the project reduced illness among children, improved self-assessed health, and increased doctor visits among the population in general, and reduced the incidence of catastrophic health spending, defined as annual spending in excess of 10 percent of annual per capita income. But the project appears to have increased the development and use of high-level facilities, hastened the demise of the village clinic, and may have reduced immunization rates. |
| Keywords: | Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3743&r=cna |
| By: | DAVID BACH (Instituto de Empresa) |
| Abstract: | China´s entry into the global economy is universally accepted as a defining feature of this new century. Much debate has focused on the impact its economy is having on world market prices, both as producer and consumer. This ´China Price´ effect puts tremendous pressure on Western firms. But China is not just competing on price. Supported by new regulatory institutions, it increasingly influences market rules and technology standards as well. Such Chinese efforts pose a direct challenge to Western competitiveness. While Western firms must adapt to the ´China Price´, countering the ´China Standard´ will require coordination with governments to formulate a countervailing regulatory agenda. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:wp05-31&r=cna |
| By: | Adam Wagstaff (The World Bank) |
| Abstract: | It is acknowledged that the lack of any systematic link between growth and income inequality does not necessarily mean that economic growth is not accompanied by major changes in the underlying income distribution. The author uses a method devised to decompose the redistributive effect of a tax to analyze the extent to which vertical redistribution associated with changing incomes over time is offset or reinforced by horizontal redistribution and re-ranking. He uses panel data from China and Vietnam over a period when both countries grew spectacularly as they transitioned from planned to market economies, and yet experienced smaller annual percentage increases in income inequality. The results suggest that substantial amounts of horizontal redistribution and re-ranking in both China-and to a lesser extent Vietnam-more than offset pro-poor vertical redistribution. Without the horizontal redistribution and re-ranking, the Gini coefficient for China might have fallen between 1989 and 1997-substantially so. |
| Keywords: | Poverty, Macroeconomics and growth |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3559&r=cna |
| By: | Louis Kuijs (The World Bank) |
| Abstract: | The author analyzes sectoral patterns of investment and saving in China-over time and compared with other countries-to shed light on the factors driving high investment and on how saving is channeled into investment. The findings inform several policy debates. Key findings include: (1) investment by enterprises distinguishes China from other countries and explains most of the variation over time; (2) high household saving explains only a part of the large difference in national saving between China and other countries-the majority is explained by high saving of the government and enterprises (through retained earnings); and (3) only about one-third of enterprise investment is financed via the financial sector, a lower share than in the early 1990s. The author also explores explanations behind high saving of the government and enterprises. His findings have three sets of policy implications. First, the identified financing patterns put in perspective the exposure of the financial sector to investment-related risks but, against a background of concerns about suboptimal allocation of capital, bring to the fore corporate governance, dividend policy, and transparency and accountability of public funds. Second, the findings suggest policy adjustments that would help in achieving the government's goals of improving the quality of growth and increasing the role of consumption. Third, long term saving prospects and the impact of financial sector and pension policies are discussed. |
| Keywords: | Domestic finance, Governance, Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3633&r=cna |
| By: | Fan Zhai (Asian Development Bank); Thomas Hertel (The World Bank and Purdue University) |
| Abstract: | The authors assess the implications of multilateral trade reforms for poverty in China. They do so by combining results from a global modeling exercise with a national CGE model that features disaggregated households in both the rural and urban sectors. They examine two trade reform scenarios: one involving global trade liberalization, and one involving possible Doha Development Agenda reforms. Using the World Bank's $2 a day poverty line, the authors find that multilateral trade reforms do in fact reduce poverty in China. The biggest reductions occur in the rural areas-largely as a result of higher prices for farm products. |
| Keywords: | Agriculture, Industry, Transition, Poverty, International economics, Labor and employment |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3702&r=cna |
| By: | Branko Milanovic (The World Bank and Carnegie Endowment for International Peace) |
| Abstract: | The paper studies regional (spatial) inequality in the five most populous countries in the world: China, India, the United States, Indonesia, and Brazil in the period 1980-2000. They are all federations or quasi-federations composed of entities with substantial economic autonomy. Two types of regional inequalities are considered: Concept 1 inequality, which is inequality between mean incomes (GDP per capita) of states/provinces, and Concept 2 inequality, which is inequality between population-weighted regional mean incomes. The first inequality speaks to the issue of regional convergence, the second, to the issue of overall inequality as perceived by citizens within a nation. All three Asian countries show rising inequality in terms of both concepts in the 1990s. Divergence in income outcomes is particularly noticeable for the most populous states/provinces in China and India. The United States, where regional inequality is the least, shows further convergence. Brazil, with the highest level of regional inequality, displays no trend. A regression analysis fails to establish robust association between the usual macroeconomic variables and the two types of regional inequality. |
| Keywords: | Poverty |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3699&r=cna |
| By: | Louis Kuijs (The World Bank); Tao Wang (International Monetary Fund) |
| Abstract: | The authors study the sources and pattern of China's impressive economic growth over the past 25 years and show that key issues currently of concern to policymakers-widening inequality, rural poverty, and resource intensity-are to a large extent rooted in China's growth strategy, and resolving them requires a rebalancing of policies. Using both macroeconomic level and sector data and analyses, the authors extend the growth accounting framework to decompose the sources of labor productivity growth. They find that growth of industrial production, led by a massive investment effort that boosted the capital/labor ratio, has been the single most important factor driving GDP and overall labor productivity growth since the early 1990s. The shift of labor from low-productivity agriculture has been limited, and, hence, contributed only marginally to overall labor productivity growth. The productivity gap between agriculture and the rest of the economy has continued to widen, leading to increased rural-urban income inequality. Looking ahead, the authors calibrate two alternative scenarios. They show that continuing with the current growth pattern would further increase already high investment and saving needs to unsustainable levels, lower urban employment growth, and widen the rural-urban income gap. Instead, reducing subsidies to industry and investment, encouraging the development of the services industry, and reducing barriers to labor mobility would result in a more balanced growth with an investment-to-GDP ratio that is consistent with the medium-term saving trend, faster growth in urban employment, and a substantial reduction in the income gap between rural and urban residents. |
| Keywords: | Labor and employment, Macroeconomics and growth |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3767&r=cna |
| By: | Xubei Luo (The World Bank) |
| Abstract: | The author discusses regional development patterns in China and examines effective ways of using development aid to attain regional balanced growth through optimizing growth spillover effects. Based on provincial panel data from 1978-99 she constructs an indicator "neighborhood performance" to measure the geographic spillover effects of aggregate growth from and to different provinces according to their relative richness and geographic position. Analysis of a Solow-type growth model suggests that positive spillover effects dominate negative shadow effects at the national level as well as the regional level, and some coastal provinces provide growth pull and growth push forces for their neighbors and serve as locomotives. The results show that the rapid takeoff of the coastal provinces has the largest spillover effects on the Chinese economy, but at the expense of a widening regional gap. A policy of encouraging the growth of the non-coastal regional hubs would have strong forward and backward linkages with the inland and western regions and thus reduce the regional development gap without sacrificing much aggregate growth. The author offers support for the policy of developing inland hubs, and argues that directing development aid to Hubei and Sichuan would optimize the growth spillover impacts on inland regions. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3652&r=cna |
| By: | Jici Wang (Peking University); Xin Tong (Peking University) |
| Abstract: | The authors examine the diverse prospects of innovative sectors in Beijing and Shanghai using available indicators and data collected for this study through surveys. Beijing is the first choice for companies locating in China, but foreign employees prefer Shanghai for living convenience and cultural amenities. While Shanghai lags behind Beijing in knowledge creation and the generation of startup companies in the innovative sectors, it takes the lead in the commercialization of technological innovations and the development of creative cultural industries. The municipal authorities of Beijing and Shanghai have improved the innovation environment of the cities, but certain elements still stunt the growth of innovative industries, which cannot be removed easily. Three kinds of knowledge-intensive enterprises included in innovative sectors in the survey are high-tech manufacturers, knowledge-intensive business services, and creative content providers. The survey found that the clustering of the firms arose from the attraction of preferential policies and the purchase by governments or state-owned enterprises of information technology products. The survey shows that interaction among firms is inadequate in the knowledge-based industrial clusters in both Beijing and Shanghai. Hence, it may be some time before clustering leads to substantial gains in collective efficiency for innovative industry in Beijing and Shanghai. |
| Keywords: | Industry, Private sector development, Urban development |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3545&r=cna |
| By: | Ellen M. Douglas (University of New Hampshire); Kate Sebastian (International Food Policy Research Institute); Charles J. Vörösmarty (The World Bank); Stanley Wood (International Food Policy Research Institute); Kenneth M. Chomitz (The World Bank) |
| Abstract: | Conservation of high-biodiversity tropical forests is sometimes justified on the basis of assumed hydrological benefits - in particular, the reduction of flooding hazards for downstream floodplain populations. However, the "far-field" link between deforestation and distant flooding has been difficult to demonstrate empirically. This simulation study assesses the relationship between forest cover and hydrology for all river basins intersecting the world's tropical forest biomes. The study develops a consistent set of pan-tropical land cover maps gridded at one-half degree latitude and longitude. It integrates these data with existing global biogeophysical data. The study applies the Water Balance Model - a coarse-scale process-based hydrological model - to assess the impact of land cover changes on runoff. It quantifies the impacts of forest conversion on biodiversity and hydrology for two scenarios - historical forest conversion and the potential future conversion of the most threatened remaining tropical forests. A worst-case scenario of complete conversion of the most threatened of the remaining forested areas would mean the loss of another three million km2 of tropical forests. Increased annual yield from the conversion of threatened tropical forests would be less than 5 percent of contemporary yield in aggregate. However, about 100 million people - 80 million of them in floodplains - would experience increases of more than 25 percent in annual water flows. This might be associated with commensurate increases in peak flows, though further analysis would be necessary to gauge the impact on flooding. The study highlights basins in Southeast Asia, southern China, and Latin America that warrant further study. |
| Keywords: | Environment |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3635&r=cna |
| By: | Thomas W. Hertel (Purdue University and The World Bank); Alan Winters (The World Bank) |
| Abstract: | This paper reports on the findings from a major international research project investigating the poverty impacts of a potential Doha Development Agenda (DDA). It combines in a novel way the results from several strands of research. Intensive analysis of the DDA Framework Agreement pays particularly close attention to potential reforms in agriculture. The scenarios are built up using newly available tariff line data and their implications for world markets are established using a global modeling framework. These world trade impacts, in turn, form the basis for 12 country case studies of the national poverty impacts of these DDA scenarios. The focus countries include Bangladesh, Brazil (two studies), Cameroon, China (two studies), Indonesia, Mexico, Mozambique, the Philippines, Russia, and Zambia. The diversity of approaches taken in these studies allows the paper to reflect local conditions and priorities and illustrates many important facets of the trade and poverty link. It does, however, limit the ability to draw broader conclusions. Thus an additional study provides a 15-country cross-section analysis, and a global analysis provides estimates for the world as a whole. |
| Keywords: | Agriculture, Poverty, International economics |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3757&r=cna |