Sponsor(s):Institute of Economics, Chinese Academy of Social Sciences
12 issues per year
Current Issue: Issue 12, 2018
Journal official website:http://www.erj.cn/en/default.aspx
Economic Research Journal is supervised by Chinese Academy of Social Sciences, and sponsored by Institute of Economics, Chinese Academy of Social Sciences. It aims to conduct researches on the new situation and new problems in China’s reform and opening up, economic development and transformation. Its scope covers all fields of China economics, including economic theory, finance, taxation, enterprise, new rural construction, marketing and accounting, etc. The journal, included in CSSCI, possesses a very high academic position in both domestic and oversea economic and management domain with which you can have a overall understanding about China’s comprehensive economics.
Zhang Ping, Zheng Hongliang, Wang Cheng
Co-evolution between industrial technologies and institutions: based on multi-agent learning process
Economic Research Journal,2018,Vol 53,No. 12
At present, China is actively transforming the mechanism driving its growth from factor investment to innovation, by promoting industrial transformation and upgrading and promoting high-quality economic development. Industrial transformation and upgrading is not only accompanied by upgrading product structure, factor structure, and demand structure, but also by a coordinated upgrading of technological and institutional structure that involves complex interaction and learning among multiple levels and agents. Analyzing the co-evolution of industrial technologies and institutions will not only reveal the internal dynamic of industrial evolution, but also has theoretical and practical significance for accelerating China’s industrial transformation and upgrading. This paper explored the co-evolution of technologies and institutions from the perspective of multi-agent learning. Technology evolution includes not only the expansion of technological boundaries, but also changes in the shares of different technologies in a given area. The former is innovation-driven and the latter is driven by structural change. Compared with the emphasis of new institutional economics on reducing transaction costs, evolutionary economics emphasizes cognitions of institutions. Institutions not only influence interaction among participants by influencing transaction costs, but also influence their learning behavior by shaping the rules of learning. Institutional evolution includes not only the emergence of new institutions that change the original institutional space, but also changes in the proportions of different types in a given institutional space. As technology and institutions jointly determine the adaptability or economic performance of participants, the evolution of the two will lead to co-evolution. In the proposed theoretical model, technology and institutions as a common learning rule establish a co-evolution relationship by influencing an enterprise’s adaptability. The evolution of the technology share affects the learning rule share by affecting the enterprise’s adaptability, and the evolution of the learning rule share affects the technology share by the same route. Conservative enterprises that develop at a constant capital growth rate without learning and innovative enterprises that apply trial-and-error methods lag behind conservative enterprises in the early stage of development and surpass them in later stages. The greater the R&D investment is, the higher the capital growth rate in later stages will be. Enterprises that imitate the most innovative enterprises develop fastest among the three types of enterprises. The broader the scope of imitation is, the higher the capital growth rate will be. The industrial technology share is ultimately determined by the technology share of innovative and imitative enterprises, and imitative enterprises play a major role. The greater the technology restructuring rate is, the higher the new technology share is. The institutional share of conservative enterprises increases first and then decreases; the institutional share of innovative enterprises decreases first and then increases; and the institutional share of imitative enterprises increases all the time. The R&D effects and imitation effects promote the growth rate of the industry. When the number of enterprises is small, scale effects promote industrial growth, but when the number of enterprises is large, the industry growth rate fluctuates as the number of enterprises increases. Simulation results verify the theoretical analysis. Co-evolution is the process of diversity generation and reduction. Under the influence of the selection mechanism, highly adaptive technologies and institutions stand out, poorly adaptive technologies and institutions are weeded out, and thus diversity is gradually reduced. In the early stage of industrial development, the government must give appropriate subsidies to innovative enterprises or increase the imitation cost of imitative enterprises. Once the enterprises and industry have escaped the new technology trap, industrial policy should switch from incentives for innovative enterprises to incentives for imitative enterprises. Industrial development policies must trade off current efficiency and future efficiency to improve dynamic adaptive efficiency.
Do environmental rights trading schemes induce green innovation? Evidence from listed firms in China
Economic Research Journal,2018,Vol 53,No. 12
This paper takes China’s pilot policy on emissions trading as an example to study whether the environmental rights trading market has induced enterprise green innovation. Based on the green patent data of listed companies in China’s Shanghai and Shenzhen stock exchanges from 1990 to 2010, using the DDD method, by comparing whether the proportion of green patent applications of enterprises is increased before and after the implementation of the pilot policy on emissions trading, in the pilot area and in non-pilot area, in the polluting industry and in the clean industry, to test the policy-induced effect on green innovation of enterprises. Further, according to patent types, enterprise ownership, industry pollutant measurement standards, policy nodes, etc., a series of heterogeneous discussions and robustness tests on policy-induced enterprise green innovation were conducted. The study found that, first of all, compared with enterprises in non-pilot areas and the clean industry, the pilot policy on emissions trading triggered green innovation activities of enterprises in the polluting industries in the pilot areas. Second, the policy’s inducing effect on green innovation is mainly directed at green invention patents rather than green utility-model patents. Third, as far as the research sample is concerned, compared with state-owned enterprises, the green innovation activities of non-state-owned enterprises are more responsive to the pilot policy.
Economic Research Journal,2018,Vol 53,No. 12
Chinese economy has experienced rapid growth since the reform and opening up began forty years ago. One unique feature of the Chinese economy is the high and still-increasing household savings rate. According to the World Bank’s data, between 2000 and 2015, China’s household savings rate (defined as the ratio of household disposable income less household consumption to household disposable income) increased steadily from less than 28% to over 37%, which is one of the highest rates in the world. Over the same period, income inequality among Chinese households as measured by the Gini coefficient also rose from 0.42 in 2000 to 0.49 in 2010. Although it slightly decreased to 0.47 in 2015, China’s household income inequality is still among the world’s worst. Are these two co-existent, unique features of the Chinese economy correlated? In this paper, we examine the extent to which the interaction between income inequality and liquidity constraints can explain the high household savings rate in China. First, we construct a simple two-period model that links the household savings rate with income inequality and liquidity constraints. In this model, households are assumed to be different in two dimensions, namely, heterogeneity in initial wealth and income and heterogeneity in time preference and thereby in subjective discount factor. In addition, we assume that households may face liquidity constraints. Given a household’s type of income and discount factor, and whether the liquidity constraint is binding, the consumption and savings rate are endogenously determined in the model. The model provides several implications: (1) the rich save more; (2) the proportion of constrained households among the poor is higher than that among the rich; (3) liquidity constraints increase the household savings rate; (4) when income inequality increases, the rich save even more, while at the same time the poor also save more due to binding liquidity constraints, and thus the aggregate household savings rate rises. Second, using three sources of independent, large, nationally representative household survey data, the China Household Finance Survey (CHFS), China Family Panel Studies (CFPS), and Chinese Household Income Project (CHIP), we present data about the distribution of China’s household savings rate, the savings rate and credit constraints, and the prefecture-level total savings rate and Gini coefficient. Finally, we conduct a formal empirical analysis and provide consistent and comforting micro-level evidence. Specifically, (1) by regressing the household savings rate on income quintile dummies, we find that the rich do save more. The household savings rate for the top 20% income group is 49%–72% higher than for the bottom 20% income group. (2) We use probit regression to examine whether the poor are more likely to face liquidity constraints. The results indicate that the probability of liquidity constraint for the bottom 20% income group is 15%–28% higher than for the top 20% income group. (3) Using a difference-in-difference (DID) design, we estimate the effects of liquidity constraints on the household savings rate and find that they lead to a significant increase of 5%–13% in the household savings rate. (4) We address the question of the general equilibrium effect on the total household savings rate resulting from a rise in income inequality by performing a cross-sectional regression of the prefecture-level total household savings rate on the prefecture-level Gini coefficient. We find that a Gini coefficient increase of 0.01 leads to a significant increase of 0.2% in the savings rate. (5) By estimating a reduced form consumption function for the income quintiles, we provide empirical evidence that the marginal propensity to consume out of transitory income for the bottom 20% income group is CNY 600–900 out of CNY 1000, which is much higher than the top 20% income group’s CNY 200–400. This paper is not only helpful in understanding the Chinese savings puzzle, but also has significant policy implications. If income inequality and liquidity constraints are key reasons for the high total household savings rate, drastically different policies would be needed to reduce this rate. For example, the government can design income redistribution programs (such as earned income tax credit) to reduce income inequality or devote more resources to support credit market development. An economic policy that tackles income inequality would lower the total savings rate, thus encouraging economic transition and growth. In particular, given the intensifying trade war between the US and China, it is important to expand domestic household consumption to ensure sustained economic growth and development.
The political economy of socialism with Chinese characteristics: its origin, development opportunity and construction path
Economic Research Journal,2018,Vol 53,No. 12
The construction of the political economy of socialism with Chinese characteristics is an inevitable requirement not only for China’s economic development in a new era, but also for the systematic interpretation of the Chinese path from a theoretical perspective. The present social and economic changes in international community and the deepening of reform and opening up in China require theoretical innovation in the political economy of socialism with Chinese characteristics. In addition, the evolution of core categories in political economy also calls for further innovation. To construct the political economy of socialism with Chinese characteristics, it is advisable to consult Marx’s Das Capital and develop a research methodology based on historical materialism. Marx in Das Capital argued that economic categories indicate the duality of the relationship between commodities and humans. Inspired by this duality proposed by Marx, we propose that a complete construction of the political economy of socialism with Chinese characteristics must also face the question of duality. It is essential to review the practical experience of China’s reform and opening up over the past 40 years and systemically extract new economic elements and patterns; however, the practice of socialism with Chinese characteristics constantly encounters new contradictions and problems, which poses major challenges to the original constituents of political economy. Whether we can find solutions to the problems and settle the contradictions China faces is a fundamental issue in the development of socialism with Chinese characteristics. Historical facts have proven that mainstream Western economics have misdirected the course of modernization in developing countries. Today’s economic phenomena in China have a global significance. Explaining Chinese economic phenomena means explaining global phenomena, and finding solutions to the economic problems China faces at present means settling worldwide economic problems. Therefore, a theoretical explanation and macro account of Chinese economic problems can not only contribute to the development of theoretical economics on a global level, but also, more importantly, promote global economic development, allowing developing countries to catch up with the China’s rapid development. Historical materialism is the foundation of Marxist political economy. Marx developed historical materialism to lend his initial brilliant insight to a scientific subject. Therefore, full comprehension of China’s modernization requires investigating global political and economic patterns and their historical development. On a deeper level, it means understanding the core categories of political economy in the current context, and paying attention to the significance in the label of Chinese characteristics, which brings forth innovation and vitality in the political economy of socialism with Chinese characteristics. Moreover, the most remarkable feature of its creative development lies in its terminological revolution. Therefore, the core categories and key concepts of Chinese political economy must bring forth Chinese discourse in the new era. The experience of China’s political and economic development after the reform and opening up has proved that foreign political and economic doctrine and theory should be properly drawn on and absorbed. Moreover, the construction of the political economy of socialism with Chinese characteristics should be based on China’s economic development practice and its successful market economy experience. Thus, the following four dimensions need to be focused on, including the dialectical unity of the Chinese path and global history, the organic combination of historical materialism and problem-oriented method, the elucidation of the core categories of political economy over time, and the exploration of ideological resources in China’s successful market economy.
Economic Research Journal,2018,Vol 53,No. 12
As a country grows richer, the final demand structure and the industrial structure show a salient common trend. The existing literature has overlooked the role of final demand structure in structural transformation. In this paper, we focused on the mechanism of the sectoral composition of final demand, which is measured by the sectoral share of value added as inputs to consumption, investment, and net exports. It showed first that a country’s consumption rate declines with the level of development, while the investment rate rises until a certain point then slightly decreases. We then calculated the sectoral composition of final demand using global input-output tables, based on data from the World Input-Output Database. We found that the share of manufacturing in consumption in most countries shows an inverted-U shaped trend in relation to the level of development, and the share in investment shows a sectoral decline. Moreover, the share of manufacturing in investment is much larger than in consumption. We paid particular attention to the Chinese economy during the reform era, and found a similar trend. These facts implied that the evolution of final demand structure alone can affect structural transformation and productivity growth. To quantitatively investigate the mechanism of final demand structure, we built a standard multi-sector growth model with an investment products production function that employs sectoral outputs as intermediate inputs. The model not only features the traditional Baumol effect and Engel effect, but also incorporates the mechanism in which final demand structure affects structural transformation and productivity growth. Moreover, it allows us to decompose the Baumol effect and Engel effect into the mechanism of consumption and investment. We applied the model to China’s economy. We calculated the sectoral composition of consumption and investment in China using the KLEMS data. We estimated the parameters of the utility function and the investment products production function using iterated feasible generalized nonlinear least square (IFGNLS) estimation. We found that the income elasticity of demand for consumer goods and the output elasticity of demand for investment goods are diverse for different sectoral outputs, which in turn determines the trend of the sectoral composition of consumption and investment as the total output grows larger. The model succeeds in generating the process of structural transformation in China. We performed counter-factual experiments accordingly, and found that the mechanism of final demand structure is indeed significant. The magnitude of the effects on structural transformation and productivity growth is larger than that of the Baumol effect, though smaller than that of the Engel effect. The Baumol effect slightly decreases the effects of final demand structure, while the Engel effect increases its effects on the employment share of manufacturing and service industry. Though the Engel effect in investment is smaller than in consumption, it is still significant. We also found that the decline of the investment rate causes a fall in manufacturing employment share, which hinders productivity growth. However, because the Engel effect in investment shrinks with economic growth, the effect of this channel will decrease. We further extended the model to a dynamic model by incorporating savings decisions, so the investment rate becomes endogenous. To evaluate the role of final demand structure, we performed a counter-factual simulation by changing the value of the inter-temporal elasticity of substitution because it directly affects the investment rate. We found that the effects of final demand structure on structural transformation remain significant. Thus, the main result of the static model is robust. Previous studies mainly explained structural transformation by focusing on changes in the sectoral composition of consumption. This paper added a new mechanism to the literature by proposing the relationship between final demand structure from the demand side and industrial structure from the supply side. The policy implication is that China’s government should pay particular attention to this relationship, even when it mainly focuses on supply-side structural reform.
The investment and financing decision mechanism of the Chinese real sector: economic uncertainty and the financial constraints perspective
Economic Research Journal,2018,Vol 53,No. 12
As the structural problems implicit in the early stages of China’s economic growth have emerged, there has been a subtle shift in the investing and financing mechanisms of China’s real sector (i.e., non-financial firms). Since 2006, the real investment rate of real firms has been declining, while the proportion of financial investment has gradually increased, and the leverage of the financing side has remained high. To encourage real investment and reduce leverage among real firms, China has introduced a series of economic policies (especially supply-side structural reform measures). The economic policy uncertainty implied by the adjustment amplitude and frequency of macroeconomic policy has a significant impact on the investment and financing decisions of various firms, but this kind of influence is usually more hidden, and has thus received little attention to date among researchers. This paper examines the decision-making mechanism for investing and financing among Chinese real sector firms, based on economic policy uncertainty and the heterogeneity of financing constraints. To summarize, this paper focuses on the following three interrelated issues. First, how do firms make investment decisions in response to economic uncertainty? We paid attention to different results for different firms with different financing constraints and discussed their implications. Second, given the important role of economic policy uncertainty, how do firms dynamically adjust their financing decisions (especially cash holdings and leverage). In particular, we intended to examine whether there were significant differences in financing constraints for different firms. Third, through which channels does economic policy uncertainty affect the investing and financing decisions of firms, and ultimately lead to different financing constraints on firms as they make differentiated responses? Studying these three problems not only helps us understand changes in firms’ investing and financing decisions in response to macroeconomic policy but is also of great significance for understanding the optimal path of macro-level supply-side structural reform from the micro level. We introduced economic policy uncertainty into a three-period investing and financing model for firms. We also classified firms in the Chinese real sector based on different financing constraints and explained the differential impacts of economic policy uncertainty on the investing and financing decisions of different firms. Our empirical analysis utilized quarterly data for China’s non-financial firms listed in the A-share stock market from 2007 to 2017. The theoretical model and empirical results consistently show that, regardless of firms’ financing constraints, an increase in economic policy uncertainty leads to the decline of real investment (i.e. fixed asset investment), but the adjustment of financing decisions depends on the degree of financing constraints that firms face. Specifically, the decline in leverage and upward adjustment of cash holdings in firms with low financial constraints is significantly weaker than in firms with high financial constraints. Further mechanism analysis shows that economic policy uncertainty affects enterprise investing and financing decisions through future cash flow expectations, fixed asset yields, and cash flow uncertainties, but the impact on debt financing costs is not statistically significant. Based on our theoretical analysis and empirical results, this paper put forward the following policy suggestions. Firstly, economic policy adjustment requires greater attention to amplitude and frequency to avoid uncertainty and must take market self-regulation into account. Secondly, in the supply-side structural reform, it is important to focus on adjusting the leverage ratio of state-owned enterprises and large-sized firms, especially zombie firms, rather than private firms and small-sized firms. Thirdly, the government must consider the differences between different financing constraints for different economic components in particular regions, to promote the growth of real firm differentiation in China.
Economic Research Journal,2018,Vol 53,No. 12
The growth of shadow banking has dramatically changed China’s social financing structure. During the period from 2003 to 2013, the share of shadow bank lending in aggregate financing increased from 8% to 30%. Considering the important role that shadow banking played in the 2008 financial crisis, many researchers have begun to examine its role in the transmission of economic fluctuations. However, shadow banking in China differs from its Western counterparts in that commercial banks still play a core role in it. Because asset securitization services and financial derivative markets in China are far less extensive than in Western countries, China’s shadow banking system is heavily dependent on traditional commercial banks. Commercial banks transfer their credit assets outside the balance sheet in various ways, such as cooperating with trust companies, and offer these services to customers whose loan demands cannot be satisfied by the formal banking system due to regulatory limits. These characteristics imply that China’s shadow banking system may have a unique dynamic. This paper makes two major contributions. Firstly, through an empirical study, it identified the business cycle properties of China’s shadow banking system. Secondly, from the view of credit constraint, it built a theoretical model based on the institutional characteristics of China’s banking system to explain the dynamics of shadow banking and evaluate its impact on monetary policy transmission. To overcome the “price puzzle” and obtain a robust estimation, it used a structural VAR model with sign restrictions to identify the dynamics of shadow banking. The empirical results show that, in contrast to commercial banks, China’s shadow banking system operates in a counter-cyclical direction. Monetary policy contraction leads to a decrease in commercial bank lending and, surprisingly, a significant increase in shadow bank lending. To understand the mechanism behind shadow banking dynamics, it formulated a DSGE model with credit constraints to explain its counter-cyclical property. It turns out that monetary policy shock and loan to deposit ratio (LDR) regulation shock are the main driving forces behind China’s shadow banking dynamics. These two shocks transmit through two credit constraints facing commercial banks and produce the counter-cyclical fluctuation of shadow banking. The first credit constraint is a standard capital adequacy constraint. All bank assets face such regulation. However, when calculating the capital adequacy ratio, the risk weight of off-balance-sheet assets is set much lower than that of on-balance-sheet assets, which results in regulatory arbitrage. Under a tightening monetary policy shock, commercial banks react by transferring credit off their balance sheet to relieve the pressure of capital adequacy constraints, leading to an increase in shadow bank lending. The second credit constraint is a unique LDR constraint. For commercial banks, only on-balance-sheet assets are constrained by LDR regulation. Under a negative LDR regulation shock, commercial banks again transfer credit through shadow banking, leading to a significant decrease in commercial bank lending and an increase in shadow bank lending. Therefore, credit constraint is the key to understanding the counter-cyclical fluctuation of shadow banking in China. In addition, we evaluate the impact of shadow banking on monetary policy transmission. By counter-factual experiment, it is found that the existence of shadow banking buffers the decrease in inflation and output. China’s shadow banking was born out of and grew rapidly during the period of monetary policy tightening, thus weakening the effectiveness of monetary policy. Nonetheless, although this paper did not include financial risk in the model, the possibility that commercial banks’ regulatory arbitrage may accumulate financial risk through shadow banking cannot be neglected. Model simulation also shows that counter-cyclical fluctuation can be alleviated by direct regulation of shadow banking, which is consistent with the Chinese government’s contemplation of new measures.
Economic Research Journal,2018,Vol 53,No. 12
The formation of youth human capital is a major driving force in the development of society. As an important component of human capital, non-cognitive skills have attracted global attention. This study of the factors affecting non-cognitive skills provides theoretical and empirical evidence that will help educators improve classroom management and educational outputs and promote children’s capital accumulation. Making use of a randomized field experiment, this paper explored the impact of peers on children’s non-cognitive skills, and focused on the mechanism involved. Unlike most Western classrooms, traditional Chinese primary and secondary school classrooms feature basically fixed seating arrangements; thus, the classmates seated near to a given student are also fixed. This circumstance provides a way to explore the effect of peers on non-cognitive skills. Based on the small group in proximity to a particular seat in the classroom, we can explore the impact of leadership spatial positions on the non-cognitive skills of the surrounding students. We performed random seat assignment in three primary schools, divided the students into different groups according to their low-to-high order, carried out a completely random seat arrangement in each group, then defined two peer groups: peer2 (the student and his/her deskmate) and peer5 (the student, the two students sitting at the desk directly in front of him/her, and the two students sitting at the desk directly behind). Sample data were collected using two rounds of questionnaires. The OLS regression results show that each additional student leader in peer5 has a significant positive impact on students’ openness to experience and neuroticism. There are also significant differences in peer effects for students of different genders, and girls benefit more from surrounding leadership positions. Three kinds of robustness tests were carried out on the empirical results. (1) To avoid omitted variable bias, a sensitivity test of the R_max bound was carried out; (2) we removed the samples without a deskmate or where the desks directly in front or behind had fewer than two students; (3) the variable of interest was changed from the number of leadership positions to the proportion of leadership positions in the group. These robustness tests show that our empirical results are stable. In terms of theoretical models, because the selection of leadership positions is endogenous, we used the CEM matching method to balance samples. The matched empirical result of the peer effect is consistent with the boutique model: an individual benefits from a surrounding environment that is similar to his or her own characteristics. In terms of impact mechanisms, we used the amount of communication in the classroom as a proxy variable for social interaction. The results of a one-way analysis of variance show that interaction between students within the group explains the differences in peer effects among different groups. Finally, we discussed the relationship between cognitive skills and non-cognitive skills. However, due to the limitations of the sample data, we cannot conduct further analysis; further research is necessary. Based on the results, we suggest that school administrators fully consider the individual characteristics of students and the distance between student leaders and others when assigning seats, so as to strengthen communication and cooperation. The main contributions of this paper are as follows. First, it provides a new perspective on the formation mechanism of children’s non-cognitive skills, through analyzing the impact of leadership positions on the non-cognitive skills of surrounding students in the small group of neighbors in the classroom. Second, it discusses the mechanism of peers’ effect on children’s acquisition of non-cognitive skills, and provides guidance for improving class seat management and promoting human capital accumulation.
How can small farmers be incorporated into modern agricultural development?: evidence from wheat-producing areas of China
Economic Research Journal,2018,Vol 53,No. 12
In Neoclassical economics, economies of scale are generally regarded as the main contributor to economic growth. By contrast and under the lens of the revival of classical economics by Young et al., the division of labor is considered the driving force for increasing returns to scale and economic growth. In China, the discussion concerning agricultural household operations has centered on land circulation and its scale operations, while the issue of division of labor in agriculture has not received sufficient attention. Existing economic theories fail to fully explain China’s problems. In 1776, Adam Smith proposed that “the division of labor is limited by the extent of the market,” which is now known as Smith’s Theorem. The theorem primarily concerns the division of labor within a firm, but fails to address the industrial division of labor and the relationship between these two elements. The contribution of Allyn Young lies in explaining the division of labor not only within a firm, but also at the industry level, and proposing the reciprocity of division of labor and market capacity, which is known as Young’s Theorem. Although Young further elaborated on the relationship between division of labor and market capacity on the basis of Smith, the homogenization of the market was based on neoclassical economics. Because it is inherently subject to biological rhythms and geographical decentralization, the division of labor and transaction in agriculture are far more complex. Applying theories of the division of labor to agriculture may reveal serious shortcomings. First, the issue of transaction costs in the division of labor has not been fully explored. The scale economy of a firm is determined by its external (market) transaction costs and internal management costs. However, when it comes to the agricultural sector, how the transaction costs in the division of labor are generated and expressed has not yet been explained. Second, industrial organization and firm theories mainly focus on the vertical division of labor, while regional economics and international trade focus on the horizontal division of labor. These two types of division of labor are still separated. In the context of agriculture, the relationship between the horizontal and vertical division of labor requires further examination. Horizontal specialization induced by contiguous planting of crops, and market capacity buildup induced by demand for service outsourcing, mainly determine the development of vertical specialization in agriculture. Vertical agricultural specialization, in return, contributes to the emergence of trans-regionally mechanical service operation, which reduces transaction costs, increases market capacity, and deepens the division of labor, resulting in a spatial spillover effect on agricultural distribution. With a panel dataset of cities in China’s major wheat production areas from 2005 to 2015, we analyze the interaction effect and spatial spillover effect between agricultural machinery and wheat planting. The results first show that division of labor and market capacity are related. Second, deepening the division of labor and transregional service further increases the spatial spillover effect on market capacity. Third, the effect of market capacity on division of labor is mediated by the growth of the regional service market, while the effect of division of labor on market capacity buildup is mediated by transregional service outsourcing along the latitudes. Combining theoretical frameworks such Smith’s Theorem, Young’s Theorem, and transaction cost theory and integrating the vertical and horizontal division of labor can result in a deeper understanding of market capacity, division of labor, transaction costs, and their interactions. The policy implications are that market capacity, expressed by both the horizontal division of labor and regional specialization, depends on the behavioral responses of small farmers to the availability of outsourcing services. It can thus be expanded both spatially (by developing contiguous planting) and temporally (by providing transregional service along latitudes). Improving crop distribution by increasing the sown area of wheat along the latitudes will then be helpful in improving the economies of the division of labor. Prioritizing investment in agricultural machinery and cultivating the market for service outsourcing can be effective in engaging farmers in the division of labor, and so should be a part of the modern agricultural system.
The Evolution of China's Rural Development Strategy and Its Theoretical Basis over the Past 40 Years of Reform and Opening-up
Economic Research Journal,2018,Vol 53,No. 12
China’s reform and opening up began in 1978, and has thus been going on for 40 years. It began with the rural land system, which has not only had a profound impact to date, but will continue to affect China’s future, and to a certain extent the world’s. This paper attempts two tasks. First, it aims to summarize the practice of rural reform and development in China. By investigating numerous reform proposals and actions, and identifying important central government documents on agriculture, rural areas, and farmers, this paper divides rural development in China since 1978 into five different strategic stages, which are basically in line with the tenures of high-level leadership groups in China. During these five stages, five development strategies were implemented: these strategies focused on household contract system and grain output; simultaneous development of agriculture and township enterprise; reform of grain circulation system and small-town development; coordination of urban-rural development and new rural construction; and land system reform (“new land reform”) and rural revitalization. The key measures in these five stages are described and explained, especially for rural revitalization, in terms of scientific understanding, relationship with previous strategies, impact on the future of rural China, and implementation problems encountered. The division of these five stages, the summary and refinement of five development strategies and the analysis of the coherence and difference between strategies are the contributions of this paper. The second task is a systematic theoretical summary and analysis of the reform and development of the rural economic systemin conjunction with several major events of the past 40 years, and to explain the relevant theories, their basis, and the innovations they introduced. The main points are as follows. (1) The paper concludes that historical materialism and the theory of socialism at the primary stage are the theoretical basis for the reform and development of the rural economic system, which was characterized by the implementation and continuous improvement of the household contract system. (2) The late 1970 s collapse of the “people’s commune system”, an inefficient Nash equilibrium that existed in China for a long period of time, is examined. (3) China’s rural household land contract system has proved and falsified the incomplete contract theory; this paper instead proposes an “open contract theory” and creates a new set of concepts of “passive contract incompleteness” and “active contract incompleteness”, arguing that China’s household contract system is an open contract without adverse selection and moral hazard. (4) This paper hypothesizes that land concentration effect differentiation explains why the current land transfer in China will have little effect in the era of agricultural economy. (5) It offers a theoretical elucidation to the questions of “compensation or not” and “what’s the compensation standard” of land expropriation by local governments in China. (6) It considers the “separation of rural ownership rights, contract rights, and management rights” an important theoretical innovation, and explains why it is more suitable than privatization of rural land property in China. (7) It explains theoretically why the period of land contract in the new era in China has been extended for another 30 years but will not remain unchanged over the long term. (8) It evaluates the policy of “direct subsidy for grain production”, which has been implemented for over a decade in China. In a word, this paper contributes to understanding economic growth and social progress in Chinese rural areas, and the role played by the central government’s development strategies. It also contributes to the theoretical explanation of economic growth in China. The stylized facts in China have confirmed some economic theories and rejected others. The development of theory always occurs in relation to practical problems. The many important practical problems of China’s reform and development called for theoretical innovations from Chinese economists, who in turn made a number of key theoretical contributions and will continue to do so.