Are Chinese individuals prone to money illusion?
Heleen Mees, Philip Hans Franses 20 November 2011
Are the Chinese prone to money illusion? This column uses a unique Chinese dataset and finds that, unlike their American counterparts, Chinese people are more likely to base decisions on the real value and not be fooled by inflation.
China’s monetary policy and its inflation have got people talking – particularly about the effect on other countries (see for example the eBook edited by Evenett 2010). But what about its effect on China’s people? Are they fooled by money illusion?
Frontiers of economic research Monetary policy
US, inflation, China, money illusion
Does openness generate growth? Reconciling the experiences of Mexico and China
Timothy Kehoe, Kim Ruhl 19 November 2011
In 1985, Mexico opened itself to trade and investment. In recent years, China has followed the same path with much more impressive results. But this column argues that the slow growth and crises that Mexico experienced after the initial boom should act as a warning to those optimistic about China.
Does opening to international trade and foreign investment generate economic growth? A large empirical literature employs regressions with a country’s growth rate as the dependent variable and some measure of openness among the independent variables. Although some researchers find that growth is positively correlated with the share of trade in GDP, Rodríguez and Rodrik (2001) point out that the trade share is not a direct measure of policy. When the dependent variable is a measure of policy, the results are ambiguous and highly sensitive to the exact specification of the regression.
International finance International trade
China, free trade, financial globalisation, openness, Mexico
The financial trilemma in China and a comparative analysis with India
Rajeswari Sengupta, Joshua Aizenman 15 November 2011
Emerging markets face what some economists are calling a trilemma. They cannot simultaneously target exchange-rate stability, conduct an independent monetary policy, and have full financial integration. So what to do? This column looks at how Asia’s giants are responding – and in different ways.
Policymakers dealing with the Great Recession of 2008–09 are confronted with what we call the ‘financial trilemma’. This hypothesis, based on pioneering work by Mundell and Fleming in the 1960s, asserts that a country may not simultaneously target exchange-rate stability, conduct an independent monetary policy, and have full financial integration – it is a potent paradigm of open-economy macroeconomics (see Fleming 1962 and Mundell 1963).
Development International finance International trade
China, India, emerging markets, exchange-rate policy, financial trilemma
China’s economic growth ‘miracle’ and its outlook by 2020
Yuhan Zhang 13 November 2011
China’s growth since the 1980s has been phenomenally high. This column argues that it has been driven not by exports, as widely believed, but by investment. It adds that this strategy makes China’s economy unsustainable as it creates significant overcapacity in a range of sectors and leads to increasing debt. China’s road towards more consumption-driven growth will be far from smooth.
China’s economy has taken off since Deng Xiaoping’s economic reforms in 1978. Contrary to the conventional wisdom that China’s economic growth has been driven by exports, it is investment that actually contributes the most. China’s fixed capital formation and inventories jumped from 30% of GDP in 1980 to around 47.5% in 2010. Fixed capital formation, which corresponds to infrastructure such as factories, roads, and housing, had risen to the unprecedented high of 18.2 trillion renminbi at the end of 2010. And it is still rising.
Should India join the sovereign-wealth-fund herd?
Kavaljit Singh 31 October 2011
In 2007 China set up its sovereign wealth fund, the China Investment Corporation, with an initial capital fund of $200 billion. Since then, Asia’s other emerging economic power – India – has been wondering if it should follow. This column argues that such a move is ill-advised and that India has more worthy investment opportunities at home.
New Delhi will soon take a final call on the issue of setting up of a sovereign wealth fund. The idea of setting up an Indian sovereign wealth fund has been going around since 2007 when China established its major sovereign wealth fund, China Investment Corporation (CIC), with an initial capital fund of $200 billion. However, this time the proposal has received strong support from India’s corporate leaders who recently suggested the establishment of a state-owned sovereign wealth fund primarily to secure access to natural resources and pursue strategic investment opportunities overseas.
International finance International trade
China, India, sovereign wealth funds
The rise of the renminbi as international currency: Historical precedents
Jeffrey Frankel 10 October 2011
Over the last few years, use of China’s currency for international trade has been growing steadily. Some argue this is the start of a journey that will see the renminbi displace the dollar and become the international reserve currency within a decade. This column asks whether such prophecies are realistic by looking at how other international currencies established themselves.
All of a sudden, the renminbi is being touted as the next big international currency. Just in the last year or two, the Chinese currency has begun to internationalise along a number of dimensions. A renminbi bond market has grown rapidly in Hong Kong, and one in renminbi bank deposits. Some of China’s international trade is now invoiced in the currency. Foreign central banks have been able to hold renminbi since August 2010, with Malaysia going first.
reserve currency, China, renminbi, dollar
Will India overtake China in the next decade?
Ganeshan Wignaraja 29 September 2011
With the global economy in the treatment room, Asia’s economic giants are under examination as among the few exciting sources of world trade and growth. This column summarises the results of research on reforms, regionalism, and exports in China and India. It finds that China is likely to remain ahead in world trade in the next decade, although India has the opportunity to narrow the gap using policy measures.
There is renewed interest in the Asian giants in the wake of sluggish growth in advanced industrial economies. Over the past decades China and India have become super-exporters and surpassed all other developing countries (Winters and Yusuf 2007; Bardhan 2010). Some are predicting that India’s trade and growth performance will soon outpace China’s.
Development International trade
China, India, emerging markets
Special economic zones: What have we learned?
Thomas Farole 28 September 2011
As competition for FDI and trade share intensifies in a tightening global environment, more and more countries are looking at the potential of special economic zones to kickstart growth. But China aside, do these zones work? This column asks: what have we learned from the experiences of developing countries over recent decades?
It is more than 50 years since the establishment of the first modern special economic zones. But it is only relatively recently, particularly since the 1990s, that their popularity as a policy instrument has taken off. The International Labour Organization‘s database of special economic zones reported 176 zones in 47 countries in 1986; by 2006 this had risen to 3,500 zones in 130 countries (Boyenge 2007).
Development International trade
China, developing countries, Special economic zones
Is the dragon learning to fly? An analysis of the Chinese patent explosion
Zhihong Yu , Markus Eberhardt, Christian Helmers 27 September 2011
The number of domestic patent filings in China increased at an annual rate of 35% from 1999 to 2006. But the reasons behind this ‘patent explosion’ are unclear. By compiling a new dataset of 20,000 Chinese manufacturing firms, this column shows that the explosion has been ignited by the ICT sector.
China’s economic success over the past three decades has been widely regarded as the result of its ability to produce manufactured goods at low cost, building on the availability of cheap labour and scale economies, while relying on existing (albeit in part advanced) technologies of production. China’s ability to upgrade its technology-base and its moving up the value-chain has been widely regarded as hampered by weak (intellectual) property rights enforcement (Zhao 2006).
International trade Productivity and Innovation
China, patents, intellectual property rights
Legal origin: A Chinese perspective
Debin Ma 14 September 2011
Recent research stresses the key role of a nation’s 'legal origin' – for example, common law versus civil law regimes – in determining economic performance. This column explores the much-overlooked origin of Chinese law and the role it is playing in the country’s development.
Recent scholarship stresses the key role of a nation’s 'legal origin' – eg common law versus civil law regimes – in accounting for growth performance, and current financial institutions (La Porta et al 1998). This work, however, has a big hole in it – non-Western legal traditions are nowhere mentioned. This is curious since Western intellectual giants such as Max Weber stressed the importance of such systems.
Development Economic history Frontiers of economic research Institutions and economics
China, legal origin