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  • Author: Michael Cohen
  • Publication Date: 03-2011
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: International narratives on Argentina's recovery from the crisis of 2001-02 tend to emphasize the role of rising commodity prices and growing demand from China. Argentina is said to have been 'lucky', saved by global demand for its agricultural exports. The international narrative has also been used by local agricultural exporters to justify their objections against higher export taxes during periods of high commodity prices. These narratives are not correct. Data on the country's recovery show that it was not led by agricultural exports but was fuelled by urban demand and production. When the Convertibility period ended and the peso was devalued in 2002, price increases for imports stimulated the production of domestic goods and services for consumers. This production in turn generated multiplier effects which supported small and medium-sized firms and helped to create many new jobs. This later produced a revival of the construction and then the manufacturing sectors as well.
  • Topic: Agriculture, Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: China, Argentina, Latin America
  • Author: Luc Soete, Alexis Habiyaremye
  • Publication Date: 01-2010
  • Content Type: Policy Brief
  • Institution: United Nations University
  • Abstract: Before the current global recession, many resource-rich African countries were recording unprecedented levels of growth due to a raw material price boom. However, the collapse in raw material prices and the ensuing severe economic difficulties have again exposed the vulnerability of these countries' natural resource export-focussed economic structures. In this research brief, we describe how Africa's abundance of natural resources attracted disruptive and predatory foreign forces that have hindered innovation-based growth and economic diversification by delaying the accumulation of sufficient stocks of human capital. We suggest that for their long-term prosperity, resource-rich African countries shift their strategic emphasis from natural to human resources and technological capabilities needed to transform those natural resources into valuable goods and services to compete in the global market.
  • Topic: Economics, Emerging Markets, Industrial Policy, Global Recession, Natural Resources, Financial Crisis
  • Political Geography: Africa, China, India
  • Author: Sandeep Kapur, Suma Athreye
  • Publication Date: 01-2009
  • Content Type: Policy Brief
  • Institution: United Nations University
  • Abstract: The last two decades have seen a significant rise in the internationalization of firms from developing economies. In addition to their growing participation in international trade, a number of leading emerging economies are contributing to growing outflows of foreign direct investment (FDI) and cross-border mergers and acquisitions. According to the 2008 World Investment Report, outward flows of FDI from developing countries rose from about US$6 billion between 1989 and 1991 to US$225 billion in 2007. As a percentage of total global outflows, the share of developing countries grew from 2.7% to nearly 13.0% during this period.
  • Topic: International Relations, Economics, Globalization, International Political Economy, Markets, Foreign Direct Investment, Financial Crisis
  • Political Geography: United States, China, India
  • Author: Fang Cai
  • Publication Date: 02-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: With the aid of an analytical framework of the Lewis model revised to reflect the experience of China, this paper examines the country's dualistic economic development and its unique characteristics. The paper outlines the major effects of China's growth as achieved during the course of economic reform and the opening-up of the country: the exploitation of the demographic dividend, the realization of comparative advantage, the improvement of total factor productivity, and participation in economic globalization. By predicting the long-term relationship between the labour force demand and supply, the paper reviews the approaching turning point in China's economic development and examines a host of challenges facing the country in sustaining growth.
  • Topic: Development, Economics
  • Political Geography: China, Asia
  • Author: Jarko Fidrmuc, Ivana Bátorová
  • Publication Date: 01-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: We analyse the business cycles in China and in selected OECD countries between 1992 and 2006. We show that, although negative correlation dominate s for nearly all countries, we can also see large differences for various frequencies of cyclical developments. On the one hand, nearly all OE CD countries show positive correlations of the very short-run developments that may correspond to intensive supplier linkages. On the other hand, business cycle frequencies (cycles with periods between 1.5 and 8 years) are typically negative. Nevertheless, countries facing a comparably longer history of intensive trading links tend to show also slightly higher correlations of business cycles with China.
  • Topic: Economics, International Trade and Finance
  • Political Geography: China, Asia
  • Author: Jun Zhang
  • Publication Date: 04-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper investigates the institutional reason underlying the change in the trajectory of economic growth in post-reform China, and argues that the trajectory of growth was much more normal during the period of 1978-89 than in the post-1989 era. In the former period, growth was largely induced by equality-generating institutional change in agriculture and the emergence of non-state industrial sector. In the latter period, growth was triggered by the acceleration of capital investments under authoritarian decentralized hierarchy within self-contained regions. Such a growth trajectory accelerates capital deepening, deteriorating total factor productivity and leads to rising regional imbalance. This paper further argues that the change in the trajectory of growth is the outcome of changes in political and inter-governmental fiscal institutions following the 1989 political crisis.
  • Topic: Economics, Government, Industrial Policy, Political Economy
  • Political Geography: China, Asia
  • Author: Amelia U. Santos-Paulino
  • Publication Date: 03-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper analyses the patterns of export productivity and trade specialization profiles in the China, Brazil, India and South Africa, and in other regional groupings. In doing so, the investigation calculates a time varying export productivity measure using highly disaggregated product categories. The findings indicate that export productivity is mainly determined by real income and human capital endowments. Importantly, the study reveals significant differences in the export productivity and specialization patterns of countries with comparable per capita income levels. For instance, China's export productivity and implied export sophistication is in line with that of countries with higher per capita incomes, including some OECD industrial economies.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Africa, China, India, Asia, South Africa, Brazil, South America
  • Author: Sumei Tang, E. A. Selvanathan, S. Selvanathan
  • Publication Date: 02-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: In this paper, we investigate the causal link between foreign direct investment (FDI), domestic investment and economic growth in China for the period 1988-2003. Towards this purpose, a multivariate VAR system with error correction model (ECM) and the innovation accounting (variance decomposition and impulse response function analysis) techniques are used. The results show that while there is a bi-directional causality between domestic investment and economic growth, there is only a single-directional causality from FDI to domestic investment and to economic growth. Rather than crowding out domestic investment, FDI is found to be complementary with domestic investment. Thus, FDI has not only assisted in overcoming shortage of capital, it has also stimulated economic growth through complementing domestic investment in China.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: China
  • Author: Dominique van der Mensbrugghe, Maurizio Bussolo, Rafael E. De Hoyos, Denis Medvedev
  • Publication Date: 03-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Over the past 20 years, aggregate measures of global inequality have changed little even if significant structural changes have been observed. High growth rates of China and India lifted millions out of poverty, while the stagnation in many African countries caused them to fall behind. Using the World Bank's LINKAGE global general equilibrium model and the newly developed Global Income Distribution Dynamics (GIDD) tool, this paper assesses the distribution and poverty effects of a scenario where these trends continue in the future. Even by anticipating a deceleration, growth in China and India is a key force behind the expected convergence of per capita incomes at the global level. Millions of Chinese and Indian consumers will enter into a rapidly emerging global middle class—a group of people who can afford, and demand access to, the standards of living previously reserved mainly for the residents of developed countries. Notwithstanding these positive developments, fast growth is often characterized by high urbanization and growing demand for skills, both of which result in a widening of income distribution within countries. These opposing distributional effects highlight the importance of analysing global disparities by taking into account—as the GIDD does—income dynamics between and within countries.
  • Topic: Development, Economics, Poverty
  • Political Geography: Africa, China, India, Asia
  • Author: Ligang Song, Yu Sheng
  • Publication Date: 02-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The study decomposes the sources of Chinese growth by first making a distinction between technological progress and technical efficiency in the growth accounting framework, and then identifying a series of reform programmes, such as urbanization, structural change, privatization, liberalization, banking and fiscal system reforms as the key components in institutional innovation which facilitate the improvement of technical efficiency and through which economic growth. These components are then incorporated into the model specification, which is estimated based on a panel dataset by applying the principal component analysis (PCA) to eliminate the multicollinearity problem. The results show that urbanization, liberalization and structural change in the form of industrialization are the most important components in contributing to the improvement of technical efficiency and hence growth, highlighting the importance of government policies aimed at enhancing further urbanization, openness to trade and industrial structural adjustments to sustain the growth momentum in China. The study also found that the potential for further enhancing growth through technical efficiency in China is considerable, which can be realized by deepening state-owned enterprises (SOEs) restructuring, and banking and fiscal system reform.
  • Topic: Economics
  • Political Geography: China, Asia
  • Author: Shujie Yao, Zhongwei Han, Genfu Feng
  • Publication Date: 04-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Since China joined the WTO in 2001, the pressure for bank reforms has mounted as China ought to fully open up its financial market to foreign competition by 2006. Efficiency is key for domestic banks to survive in a liberalised environment, but it appears that the last hope for raising bank efficiency is through ownership reform. Whether ownership reform and foreign competition can solve China's banking problem remains to be tested. This paper aims to answer this question through using a non-parametric approach to analyse the efficiency changes of 15 large commercial banks during 1998-2005. We find that ownership reform and foreign competition have forced the Chinese commercial banks to improve performance, as their total factor productivity rose by 5.6 per cent per annum. This coincides with the recent bullish Chinese stock markets led by three listed state-owned commercial banks. Despite such encouraging results, we remain cautious about the future of the Chinese banks, as the good results may have been artificially created with massive government support and the fundamentals of the banks may be still weak.
  • Topic: Economics, International Trade and Finance
  • Political Geography: China, Asia
  • Author: Calum G. Turvey, Rong Kong
  • Publication Date: 05-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper investigates the economic conditions of rural households in China. Historical survey data indicate that over 80 per cent of rural households earn less than 4,500 yuan in net disposable income each year, that for the vast majority of rural households disposable income is insufficient to meet food consumption needs, and that in terms of economic growth rural households are receiving an ever decreasing percentage of China's growing economy with rural household incomes being only 31 per cent of urban household income in 2004.
  • Topic: Economics, Poverty
  • Political Geography: China, Asia
  • Author: Renwei Zhao, Shi Li
  • Publication Date: 01-2007
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper investigates some major changes in the wealth distribution in China using the data from two national household surveys conducted in 1995 and 2002. The surveys collected rich information on household wealth and its components, enabling a detailed analysis of changes in wealth distribution among Chinese households. Our analysis indicates that the wealth distribution in China as a whole became much more unequal in 2002 than it was in 1995. The housing reform, in which public apartments were sold to urban households at extremely low prices, has accelerated the accumulation of wealth among urban households on the one hand, and widened the wealth gap between urban and rural areas on the other.
  • Topic: Demographics, Development, Economics
  • Political Geography: China, Asia
  • Author: Guanghua Wan
  • Publication Date: 01-2007
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper depicts the trend of regional inequality in rural China for the period 1985- 2002. The total inequality is decomposed into the so-called within- and between components when China is divided into three regional belts (east, central and west). A regression-based accounting framework is then used to explore root sources of the rising inequality. Policy implications are discussed.
  • Topic: Demographics, Development, Economics
  • Political Geography: China, Asia
  • Author: Guanghua Wan, Yin Zhang
  • Publication Date: 12-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Applying the Shapley decomposition to unit-record household survey data, this paper investigates the trends and causes of poverty in China in the 1990s. The changes in poverty trends are attributed to two proximate causes; income growth and shifts in relative income distribution. The Foster-Greer-Thorbecke measures are computed and decomposed, with different datasets and alternative assumptions about poverty lines and equivalence. Among the robust results are: (i) both income growth and favourable distributional changes can explain China's remarkable achievement in combating poverty in rural areas in the first half of the 1990s; (2) in the second half of the 1990s, both rural and urban China suffered from rapidly rising inequality and stagnant income growth, leading to a slow-down in poverty reduction, even reversal of poverty trend.
  • Topic: Development, Economics, Poverty
  • Political Geography: China, Asia
  • Author: Yin Ge
  • Publication Date: 09-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: How do foreign trade and foreign direct investment affect regional inequality? Foreign trade and investment may affect internal economic geography, and the resulting industry agglomeration may contribute to regional inequality. This paper provides empirical evidence supporting this linkage. The results indicate that the increasing regional inequality in China has been accompanied by an increase in the degree of regional specialization and industry agglomeration. Foreign trade and foreign investment are closely related to industry agglomeration in China. Industries dependent on foreign trade and FDI are more likely to locate in regions with easy access to foreign markets, and exporting industries have a higher degree of agglomeration.
  • Topic: Economics, Industrial Policy, International Trade and Finance
  • Political Geography: China, Asia
  • Author: Zhicheng Liang
  • Publication Date: 09-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Financial development can exert a significant influence on the distribution of income. In this paper, using Chinese provincial data over the period of 1991-2000 and applying the generalized method of moment (GMM) techniques, we investigate the relationship between finance and inequality in rural China by testing alternative existing theories concerning the finance-inequality nexus. A negative and linear relationship between finance and inequality is found in our estimations. The empirical results show that financial development significantly reduces income inequality in post-reform rural China.
  • Topic: Demographics, Development, Economics
  • Political Geography: China, Asia
  • Author: Xiaobo Zhang
  • Publication Date: 09-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: China's current fiscal system is largely decentralized while its governance structure is rather centralized with strong top-down mandates and a homogenous governance structure. Due to large differences in initial economic structures and revenue bases, the implicit tax rate and fiscal burdens to support the functioning of local government vary significantly across jurisdictions. Regions initially endowed with a broader nonfarm tax base do not need to rely heavily on preexisting or new firms to finance public goods provision, thereby creating a healthy investment environment for the nonfarm sector to grow. In contrast, regions with agriculture as the major economic activity have little resources left for public investment after paying the expenses of bureaucracy. Consequently, differences in economic structures and fiscal burdens may translate into a widening regional gap.
  • Topic: Development, Economics, Politics
  • Political Geography: China, Asia
  • Author: Zhicheng Liang
  • Publication Date: 08-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Deepening financial development and rapid economic growth in China have been accompanied by widening income disparity between the coastal and inland regions. In this paper, by employing panel dataset for 29 Chinese provinces over the period of 1990-2001 and applying the generalized method of moment (GMM) techniques, we examine the impacts of financial development on China's growth performance. Our empirical results show that financial development significantly promotes economic growth in coastal regions but not in the inland regions; the weak finance-growth nexus in inland provinces may aggravate China's regional disparities.
  • Topic: Conflict Resolution, Development, Economics
  • Political Geography: China, Asia
  • Author: Geoffrey J.D. Hewings, Dong Guo, Patricio Aroca
  • Publication Date: 08-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The purpose of this paper is to examine the convergence process in China by taking into account the spatial interaction between factors. The paper shows that there has been a dramatic increase in the spatial dependence of China's per capita GDP in the last 20 years. The consequence of space plays an important role, which is reflected in the influence of a neighbour's condition on the mobility of a province's income distribution from one category to another. The dynamics of the process showed evidence that China's distribution has gone from one of convergence to stratification, and from stratification to polarization.
  • Topic: Demographics, Development, Economics
  • Political Geography: China, Asia
  • Author: Mingming Zhou, Iftekhar Hasan
  • Publication Date: 08-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper documents the financial and institutional developments of China during the past two decades, when China was successfully transformed from a rigid centralplanning economy to a dynamic market economy following its unique path. We empirically examine the relationship between financial development and economic growth in China by employing a panel sample covering 31 Chinese provinces during the important transition period 1986-2002. Our evidence suggests that the development of financial markets, institutions, and instruments have been robustly associated with economic growth in China.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: China, Asia
  • Author: Qi Zhang, Mingxing Liu, Yiu Por Chen
  • Publication Date: 06-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Using China as a test case, this paper empirically investigates how the development of financial intermediation affects rural-urban income disparity (RUID). Using 20-year province level panel data, we find that the level of financial development is positively correlated with RUID. Examining two subperiods, 1978-88 and 1989-98, we test several competing hypotheses that may affect RUID. We find that the increase of RUID may be explained by fiscal policy during the first period and financial intermediates during the second period. In addition, we show that the direction of the Kuznets effect on RUID is sensitive to changes in government development policies. The rural development policies during the first period may have enhanced the rural development and reduced RUID. However, the financial intermediary policy during the second period focused on urban development and increased both urban growth and intra-urban inequalities, thus leading to an increase in RUID. Finally, we show that RUID is insensitive to the provincial industrial structure (the share of primary industry in GDP). These results are consistent with the traditional urban-bias hypothesis and are robust to the inclusion of controls for endogeneity issues. This study adds to the economic inequality literature by clarifying the effects of government policies on the underlying dynamics on convergent and divergent effects on rural-urban inequality.
  • Topic: Development, Economics, Government
  • Political Geography: China, Asia
  • Author: Guanghua Wan
  • Publication Date: 06-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The purpose of this paper is to develop two poverty decomposition frameworks and to illustrate their applicability. A given level of poverty is broadly decomposed into an overall inequality component and an overall endowment component in terms of income or consumption determinants or input factors. These components are further decomposed into finer components associated with individual inputs. Also, a change in poverty is decomposed into components attributable to the growth and redistributions of factor inputs. An empirical illustration using Chinese data highlights the importance of factor redistributions in determining poverty levels and poverty changes in rural China.
  • Topic: Development, Economics, Poverty
  • Political Geography: China, Asia
  • Author: Zhicheng Liang
  • Publication Date: 06-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: China has experienced rapid integration into the global economy and achieved remarkable progress in poverty reduction over the last two decades. In this paper, by employing panel data covering twenty-five Chinese provinces over the period of 1986- 2002, and applying the endogenous threshold regression techniques, we empirically investigate the globalization-poverty nexus in China, paying particular attention to the nonlinearity of the impact of globalization on the poor. Estimation results provide strong evidence to suggest that there exists a threshold in the relationship between globalization and poverty: globalization is good for the poor only after the economy has reached a certain threshold level of globalization.
  • Topic: Economics, Globalization, Poverty
  • Political Geography: China, Asia
  • Author: Mingxing Liu, Pengfei Zhang, Shiyuan Pan, Justin Yifu Lin
  • Publication Date: 05-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper explores the politically determined development objectives and the intrinsic logic of government intervention policies in east developed countries. It is argued that the distorted institutional structure in China and in many least developed countries, after the Second World War, can be largely explained by government adoption of inappropriate development strategies. Motivated by nation building, most least-developed countries, including the socialist countries, adopted a comparative advantage defying strategy to accelerate the growth of capital-intensive, advanced sectors in their countries. In the paper we also statistically measure the evolution of government development strategies and the economic institutions in China from 1950s to 1980s to show the co-existence and coevolution of government adoption of comparative advantage defying strategy and the trinity system.
  • Topic: Development, Economics, Government
  • Political Geography: China, Asia
  • Author: Justin Yifu Lin, Peilin Liu
  • Publication Date: 04-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper argues that both openness and poverty in a country are endogenously determined by the country's long-term economic development strategy. Development strategies can be broadly divided into two mutually exclusive groups: (i) the comparative advantage-defying (CAD) strategy, which attempts to encourage firms to deviate from the economy's existing comparative advantages in their entry into an industry or choice of technology; and (ii) the comparative advantage-following (CAF) strategy, which attempts to facilitate the firms' entry into an industry or choice of technology according to the economy's existing comparative advantages.
  • Topic: Development, Economics, Poverty
  • Political Geography: China, Asia
  • Author: Guanghua Wan, Yin Zhang
  • Publication Date: 04-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper examines the distributional impact of globalization on the poor in urban China. Employing the kernel density estimation technique, we recovered from irregularly grouped household survey data the income distribution for 29 Chinese provinces for 1988-2001. Panels of the income shares of the poorest 20, 10 and 5 per cent of the urban residents were then compiled. In a fixed-effect model, two of the central conclusions of Dollar and Kraay (2002)—that 'the incomes of the poor rise equi-proportionately with average income' and that trade openness has little distributional effect on poverty—were revisited. Our results lend little support to either of the Dollar-Kraay conclusions, but instead indicate that average income growth is associated with worsening income distribution while globalization in general, and trade openness in particular, raises the income shares of the poor. It is also found that openness to trade and openness to FDI have differential distributional effects. The beneficial effect of trade was not restricted to the coastal provinces only, but also weakened significantly after 1992. These findings are robust to allow for nonlinearity in the effect of globalization and to control for the influence of several other variables.
  • Topic: Economics, Globalization, Poverty
  • Political Geography: China, Asia
  • Author: Tony Addison
  • Publication Date: 02-2006
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Much has changed in international finance in the twenty years since UNU-WIDER was founded. This paper identifies five broad contours of what we might expect in the next twenty years: the flow of capital from ageing societies to the more youthful economies of the South; the growth in the financial services industry in emerging economies and the consequences for their capital flows; the current strength in emerging market debt, and whether this represents a change in fundamentals or merely the effect of low global interest rates; the impact of globalization in goods markets in lowering inflation expectations, and therefore global bond yields; and the implications of the adjustment in global imbalances between Asia (in particular China) and the United States for emerging bond markets as a whole. The paper ends by noting the paradox that today we see ever larger amounts of capital flowing across the globe in search of superior investment returns, and yet the financing needs of the poorer countries are still largely unmet.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States, China, Asia
  • Author: Andrs Solimano
  • Publication Date: 08-2006
  • Content Type: Policy Brief
  • Institution: United Nations University
  • Abstract: The generation of new ideas and their application for productive uses is an important engine for growth and development. This is an area in which developing countries usually lag behind developed countries and is where development gaps are more evident. Behind the generation of ideas, innovations, and new technologies there is 'human talent': an inner capacity of individuals to develop ideas and objects, some of them with a high economic value. The 'human factor' is critical to the success or failure of many endeavours. Several countries, particularly China and India, followed by Russia, Poland, and some Latin American countries, are becoming an important source of talented people with PhDs and degrees in science, engineering, and other areas that can lead to change in the international patterns of comparative advantages and reduce development gaps. Part of the new talent formed in developing countries goes to live and work to developed countries, typically the USA, UK, and other OECD nations. At the same time multinational corporations are outsourcing several of their productive and service activities, including research and development, to developing countries (China and India are main destinations) to take advantage of the (less expensive) talent being developed there. Today, therefore, we see a double movement of talent and capital around the globe: on the one hand talent from developing countries is moving north seeking better opportunities where people are equipped with more capital, technologies, and effective organizations. On the hand capital from the north pursues talent in the south; a process largely led by multinational corporations.
  • Topic: Development, Economics, Human Welfare, Migration
  • Political Geography: United States, China, United Kingdom, India
  • Author: Guanghua Wan, Yin Zhang
  • Publication Date: 08-2005
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper proposes a semi-parametric method for poverty decomposition, which combines the data-generating procedure of Shorrocks and Wan (2004) with the Shapley value framework of Shorrocks (1999). Compared with the popular method of Datt and Ravallion (1992), our method is more robust to misspecification errors, does not require the predetermination of functional forms, provides better fit to the underlying Lorenz curve and incorporates the residual term in a rigorous way. The method is applied to decomposing variations of urban poverty across the Chinese provinces into three components – contributions by the differences in average nominal income, inequality and poverty line. The results foreground average income as the key determinant of poverty incidence, but also attach importance to the influence of distribution. The regional pattern of the decomposition suggests provincial groupings based not entirely on geographical locations.
  • Topic: Demographics, Economics, Poverty
  • Political Geography: China, Asia
  • Author: Guanghua Wan, Zhao Chen, Ming Lu
  • Publication Date: 11-2004
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: China's recent accession to the WTO is expected to accelerate its integration into the world economy, which aggravates concerns over the impact of globalization on the already rising inter-region income inequality in China. This paper discusses China's globalization process and estimates an income generating function, incorporating trade and FDI variables. It then applies the newly developed Shapley value decomposition technique to quantify the contributions of globalization, along with other variables, to regional inequality. It is found that (a) globalization constitutes a positive and substantial share to regional inequality and the share rises over time; (b) capital is one of the largest and increasingly important contributor to regional inequality; (c) economic reform characterized by privatization exerts a significant impact on regional inequality; and (d) the relative contributions of education, location, urbanization and dependency ratio to regional inequality have been declining.
  • Topic: Economics, Globalization
  • Political Geography: China, Asia
  • Author: Guanghua Wan, Yin Zhang
  • Publication Date: 08-2004
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The Chinese economy underwent cyclical fluctuations in growth and inflation in the reform period. Contrasting views exist on the role of money in such fluctuations. This paper assesses these views employing structural VEC models based on the exchange equation. It is found that in the long run money accommodates, rather than causes, changes in output and prices. In the short run, price fluctuations are mostly attributable to shocks that have permanent effects on prices and money but not on real output. These shocks also account for a large proportion of fluctuations in money, and strongly influence the movements of output.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: China, Asia
  • Author: Guanghua Wan, Yin Zhang
  • Publication Date: 08-2004
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós (2001) and Prasad (1999). The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985–2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined—the foreign supply shock, the domestic supply shock, the relative demand shock, and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade 'imbalance'.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: China, Asia
  • Author: Guanghua Wan, Yin Zhang
  • Publication Date: 08-2004
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper represents a first attempt to study China's business cycles using a formal analytical framework, namely, a structural VAR model. It is found that: (a) demand shocks were the dominant source of macroeconomic fluctuations, but supply shocks had gained more importance over time; (b) the driving forces of demand shocks were consumption and fixed investment in the first cycle of 1985–90, but shifted to fixed investment and world demand in the second cycle of 1991–96 and the post-1997 deflation period; and (c) macroeconomic policies did not play an important part either in initiating or counteracting cyclical fluctuations.
  • Topic: Demographics, Economics, Emerging Markets
  • Political Geography: China
  • Author: John Knight, Li Shi, Zhao Renwei
  • Publication Date: 08-2004
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Two precisely comparable national household surveys relating to 1988 and 1995 are used to analyse changes in the inequality of income in urban China. Over those seven years province mean income per capita grew rapidly but diverged across provinces, whereas intra-province income inequality grew rapidly but converged across provinces. The reasons for these trends are explored by means of various forms of decomposition analysis. Comparisons are also made between the coastal provinces and the inland provinces. The decompositions show the central role of wages, and within wages profitrelated bonuses, together with the immobility of labour across provinces, in explaining mean income divergence. The timing of economic reforms helps to explain the convergence of intra-province income inequality. Policy conclusions are drawn.
  • Topic: Demographics, Development, Economics
  • Political Geography: China, Asia
  • Author: Guanghua Wan, Zhangyue Zhou
  • Publication Date: 08-2004
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: A considerable literature exists on the measurement of income inequality in China and its increasing trend. Much less is known, however, about the driving forces of this trend and their quantitative contributions. Conventional decompositions, by factor components or by population subgroups, only provide limited information on the determinants of income inequality. This paper represents an early attempt to apply the regression-based decomposition framework to the study of inequality accounting in rural China, using household level data. It is found that geography has been the dominant factor but is becoming less important in explaining total inequality. Capital input emerges as a most significant determinant of income inequality. Farming structure is more important than labour and other inputs in contributing to income inequality across households.
  • Topic: Demographics, Development, Economics
  • Political Geography: China, Asia
  • Author: Ravi Kanbur, Xiaobo Zhang
  • Publication Date: 08-2004
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper constructs and analyses a long-run time-series for regional inequality in China from the Communist Revolution to the present. There have been three peaks of inequality in the last fifty years, coinciding with the Great Famine of the late 1950s, the Cultural Revolution of the late 1960s and 1970s, and finally the period of openness and global integration in the late 1990s. Econometric analysis establishes that regional inequality is explained in the different phases by three key policy variables; the ratio of heavy industry to gross output value, the degree of decentralization, and the degree of openness.
  • Topic: Development, Economics, Industrial Policy, Political Economy
  • Political Geography: China, Asia
  • Author: Martin Ravallion
  • Publication Date: 07-2003
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The paper tests for external effects of local economic activity on consumption and income growth at the farm household level using panel data from four provinces of post-reform rural China. The tests allow for nonstationary fixed effects in the consumption growth process. Evidence is found of geographic externalities, stemming from spillover effects of the level and composition of local economic activity and private returns to local human and physical infrastructure endowments. The results suggest an explanation for rural underdevelopment arising from underinvestment in certain externality-generating activities, of which agricultural development emerges as the most important.
  • Topic: Development, Economics
  • Political Geography: China, Asia
  • Author: Kym Anderson
  • Publication Date: 03-2003
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper offers an economic assessment of the opportunities and challenges provided by the WTO's Doha Development Agenda, particularly through agricultural trade liberalization, for low-income countries seeking to trade their way out of poverty. After discussing links between poverty, economic growth and trade, it reports modelling results showing that farm product markets remain the most costly of all goods market distortions in world trade. It focuses on what such reform might mean for countries of South Asia and sub-Saharan Africa in particular, both without and with their involvement in the MTN reform process. What becomes clear is that if those countries want to maximize their benefits from the Doha round, they need also to free up their own domestic product and factor markets so their farmers are better able to take advantage of new market-opening opportunities abroad. Other concerns of low-income countries about farm trade reform also are addressed: whether there would be losses associated with tariff preference erosion, whether food-importing countries would suffer from higher food prices in international markets, whether China's WTO accession will provide an example of trade reform aggravating poverty via cuts to prices received by Chinese farmers, and the impact on food security and poverty alleviation. The paper concludes with lessons of relevance for low-income countries for their own domestic and trade policies.
  • Topic: Agriculture, Economics, Emerging Markets, International Trade and Finance, Poverty
  • Political Geography: Africa, China
  • Author: Danny Quah
  • Publication Date: 03-2002
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper studies growth and inequality in China and India—two economies that account for a third of the world's population. By modelling growth and inequality as components in a joint stochastic process, the paper calibrates the impact each has on different welfare indicators and on the personal income distribution across the joint population of the two countries. For personal income inequalities in a China-India universe, the forces assuming first-order importance are macroeconomic: Growing average incomes dominate all else. The relation between aggregate economic growth and within-country in- equality is insignificant for inequality dynamics.
  • Topic: Development, Economics
  • Political Geography: China, South Asia, India, Asia
  • Author: Martin Ravallion, Jyotsna Jalan
  • Publication Date: 01-2002
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: It is well known in theory that certain forms of non-linear dynamics in household incomes can yield poverty traps and distribution-dependent growth. The potential implications for policy are dramatic: effective social protection from transient poverty will be an investment with lasting benefits, and pro-poor redistribution will promote aggregate economic growth. We test for non-linearity in the dynamics of household expenditures and incomes using panel data for rural south-west China. While we find evidence of non-linearity, there is no sign of a dynamic poverty trap. Existing private and social arrangements in this setting appear to protect vulnerable households from the risk of destitution. However, the concavity we find in the recursion diagram does imply that the speed of recovery from an income shock is lower for the poor, and that current inequality reduces growth in mean incomes.
  • Topic: Development, Economics
  • Political Geography: China, Asia
  • Author: Jian Sun
  • Publication Date: 02-1999
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Since the beginning of the Chinese economic reforms in 1978, there has been a series of effort to reform the labour compensation practice in state-owned enterprises to strengthen the link between pay and productivity. Despite the reforms, however, rapid increases in wage rates occurred in state-owned enterprises. Moreover, although state-owned enterprises have much lower productivity gains than non-state enterprises, they pay substantially higher wages and have faster wage growth.
  • Topic: Economics, Globalization, Industrial Policy, International Political Economy
  • Political Geography: China, Asia
  • Author: Danny Quah
  • Publication Date: 01-1999
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Can the increasing significance of knowledge-products in national income—the growing weightless economy—influence economic development? Those technologies reduce "distance" between consumers and knowledge production. This paper analyzes a model embodying such a reduction. The model shows how demand-side attributes—consumer attitudes on complex goods; training, education, and skills for consumption (rather than production)—can importantly affect patterns of economic growth and development. Evidence from the failed Industrial Revolution in 14th-century China illustrates the empirical relevance of the analysis.
  • Topic: Development, Economics, Science and Technology
  • Political Geography: China