Do capital controls deflect capital flows?
Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu 23 June 2014
Capital controls may help countries limit large and volatile capital inflows, but they may also have spillover effects on other countries. This column discusses recent research showing that inflow restrictions have significant spillover effects as they deflect capital flows to countries with similar economic characteristics.
The size and volatility of capital flows to developing countries have increased significantly in recent years (Figure 1), leading many economists to argue that national policies and multilateral institutions are needed to govern these flows (Forbes and Klein 2013, Blanchard and Ostry 2012). The IMF itself has reviewed its position on the liberalisation and management of capital flows, while recognising that “much further work remains to be done to improve policy coordination in the financial sector” (IMF 2012, p. 28).
China, capital flows, spillovers, South Africa, capital controls, Brazil, Capital inflows, international capital flows
Curriculum and ideology
Davide Cantoni, Yuyu Chen, David Y. Yang, Noam Yuchtman, Y. Jane Zhang 29 May 2014
Schooling changes are associated with ideological ones but it is difficult to claim a causal relationship. This column attempts to analyse the causal effect of curriculum changes in China on shaping preferences of students. The new curriculum moves one’s belief about democracy by about 25% of a standard deviation in the direction desired by the government. The findings suggest the state can use education to promote socially-useful beliefs and cultivate good citizenship.
Education shapes young minds. Contemporary debates rage on whether it also shapes people’s political views, attitudes, and their values. Examples range from teaching of evolution in US schools, to the role of madrassas in the Islamic world, and the coverage of World War II in Japanese history textbooks. In 2012, an attempt to introduce a mainland Chinese curriculum into Hong Kong schools led to tens of thousands of people taking to the streets in protest.
Scholars across the social sciences have argued that schools play an important role in shaping political attitudes:
education, China, curriculum reform
Why are savings so high among the young in urban China?
Mark R. Rosenzweig, Junsen Zhang 21 May 2014
Household savings in China are high by international standards, and the young save as much or more than the middle-aged – a fact at odds with the standard life-cycle savings model. This column argues that neither old-age support by the middle-aged nor the one-child policy can satisfactorily explain this phenomenon. Rather, currently high housing costs and the prevalence of inter-generational shared housing are key reasons for the higher savings rates of the urban young in China.
A well-known phenomenon in contemporary China is the high personal savings rates of households compared with those in developed countries and many low-income countries. A less-studied aspect of this is the elevated savings rates of the young relative to the middle-aged, first shown by Chamon and Prasad (2010) based on urban household data covering the years 1986–2005 for ten provinces.
Frontiers of economic research Global economy
China, housing, family, savings, one-child policy
Minimum wages and firm employment: Evidence from China
Yi Huang, Prakash Loungani, Gewei Wang 16 May 2014
Minimum wages are set to increase in China under the country’s latest five-year plan. This column documents that past increases led to lower employment. However, the impact is heterogeneous. Firms with high average wages or large profit margins actually increase employment, while those with low average wages or small profit margins downsize.
The impact of the minimum wage on employment is a polarising issue in ‘advanced’ – the term commonly used for ‘high-income’ – economies. In the blogosphere, one side is often accused of cruelty (‘they don’t care about the working poor’) and the other of stupidity (‘they don’t realise that labour demand curves slope downwards’). The evidence is mixed. The majority of studies find that minimum wage changes lower employment by a modest amount (Neumark and Wascher 2007) or have little impact (Schmitt 2013).
China, minimum wage
China is not yet number one
Jeffrey Frankel 09 May 2014
Many claim that China will soon overtake the US. This column argues that this claim is based on a misuse of statistics. ICP price data is necessary to compare living standards, since a dollar’s worth of yuan buys more in China than a dollar buys in the US. But the fact that rice and clothes are cheap in rural China does not make the Chinese economy larger. What matters for size in the world economy is how much a yuan can buy on world markets. Using the correct prices, the US remains the world’s largest economic power by a substantial margin.
Widespread recent reports have trumpeted: “China to overtake US as top economic power this year.” The claim is basically wrong. The US remains the world’s largest economic power by a substantial margin.
US, China, purchasing power parity, statistics
Increased export performance and competitiveness of developing countries is mainly a China story
M. Ataman Aksoy, Francis Ng 03 May 2014
Developing countries gained significant market shares in both industrial and developing countries throughout the 1990s and 2000s. This column highlights that China accounts for more than 70% of market share gains by developing countries in both industrial and developing countries during the 2000s. Recent increases in the industrial capabilities and competitiveness of developing countries can thus be considered predominantly a Chinese affair.
One of the important developments of the last couple of decades has been the rapid expansion of manufacturing exports from developing countries to high-income industrial countries, as well as to other developing countries. Developing economies have also gained significant market share in both major industrial countries and in each other’s markets during this period (Aksoy and Ng 2013a, 2013b).
China, market shares, south-south trade
China’s regional and bilateral trade agreements
John Whalley, Chunding Li 05 March 2014
After joining the WTO in 2001, China has entered into a number of trade agreements. Those currently in consideration are substantially larger than the initial ones. China, more than any other large economy, needs to attempt to enhance its export growth, which has turned negative in 2013. This column discusses some of China’s trade agreements and summarizes the implemented negotiation strategy. The impact of these trade agreements on China’s economic growth also deserves attention.
China’s efforts at international trade diplomacy did not stop with its 2001 WTO accession. China is increasingly active in her pursuit of regional trade agreements (RTAs).
China’s one-child policy and saving puzzle
Taha Choukhmane, Nicolas Coeurdacier , Keyu Jin 22 January 2014
Since China is growing rapidly, one might expect Chinese households to borrow against their future income. In fact, Chinese households save 30.5% of their income – compared to about 5% in OECD countries. This column discusses recent research linking the Chinese saving puzzle to China’s one-child policy. The savings rate of households with twins is about 6–7 percentage points lower than that of households with an only child. Demographic factors can explain an estimated 35–45% of the 20 percentage-point rise in China’s household saving rate between 1983 and 2011.
The Chinese household saving rate is high and has been rising sharply. Between 1983 and 2011, the average urban household saving rate rose by about 20 percentage points – from 10.4% to a staggeringly high level of 30.5%. This stands in sharp contrast with the low household savings rate in developed countries (about 5% in OECD economies). A fast-growing economy should in principle be borrowing against future income to bring forward consumption.
Education Gender Microeconomic regulation
China, fertility, demographics, savings, one-child policy
China's growth, stability, and use of international reserves
Joshua Aizenman, Yothin Jinjarak, Nancy P. Marion 05 January 2014
Before the financial crisis, the world economy was characterised by large and growing current account imbalances. Since the onset of the crisis, the current account imbalances of the US and China have decreased to half their pre-crisis levels. This column highlights the implications of the reduction in the current account surplus for China, and gives policy recommendations. A restructuring of the economy is needed, and reversing of policies that depress consumption and prevent real appreciation.
US, global imbalances, China, global crisis
Has China’s new labour contract law worked?
Richard B. Freeman, Xiaoying Li 22 December 2013
Formal contracts are key to enforcing workers’ rights. This column presents evidence that the Labour Contract Law improved worker outcomes in China, especially among migrant and low-wage workers. The proportion of workers with social insurance increased without any significant negative effect on the employment rate.
In 2007 China enacted a new Labour Contract Law (LCL) – the first major labour reform in over a decade. The law sought to pressure firms to give workers written contracts that would help workers enforce their legal rights at the workplace. Because local governments put economic growth and business interests above worker well-being, implementation of labour laws in China has historically been weak (Tang 2008) with the result that many workers in China suffered ill treatment by employers (Lee 2007, Chan 2001).
China, labour contracts