Sponsor(s): Shanghai University of Finance and Economics
12 issues per year
Current Issue: Issue 04, 2018
Journal of Finance and Economics is supervised by Ministry of Education of PRC, and sponsored by Shanghai University of Finance and Economics. It aims to include research results on the major theories and practical problems in China’s reform and opening up and modernization of economic construction. Its scope covers all the major fields of Economics, including Public Economy, Finance, Accounting, Economic history, Regional Economics, Industrial Economics, International Economics. The Journal is included in CSSCI.
Journal of Finance and Economics,2018,Vol 44,No. 04
The extension of life has exerted more and more pressure on the Chinese pension industry. In order to alleviate this pressure, more and more experts and scholars put forward policy recommendations for postponing retirement. At present, the specific reform scheme of the retirement age in China has not yet been introduced, and there are still some disputes on how to carry out the policy of postponing retirement. However, from the perspective of international experience, some countries or regions adjust retirement age directly or indirectly according to the life expectancy of population. This practice is important reference for China. Whether China should build the adjustment mechanism of life expectancy and retirement age has very high research value. Against this background, this paper investigates the feasibility of establishing the linkage mechanism of life expectancy and retirement age from a perspective of a social planner through mathematical deduction and theoretical research, and further explores the adjustment formula between them. It hopes that this research can enrich and develop the application of overlapping generations model to the pension problem, and give relevant reference to government departments regarding the issue of postponing retirement. This paper, based on two-period overlapping generations model, introduces the retirement factors, and builds a general equilibrium framework in four aspects of individual behavior, corporate behavior, government behavior and capital market equilibrium under the assumptions of perfectly competitive market, full employment and government control of the retirement age. With the optimality principle and the comparative static analysis, we find that when the economy is in a steady state, life expectancy with the maximum social welfare is positively related to the retirement age, manifesting a negative inverse proportion function form. Based on this functional relation, we use the parameter estimation method and parametric simulations to solve the adjustment formula of life expectancy and retirement age of population, and put forward an adjustment comparison table between them. According to the calculation results and prediction of life expectancy by National Plan on Population Development (2016–2030), we recommend extending the retirement age to 65 years-old before 2030. In the end, by testing the model, on the premise of keeping the pension balance, we find that if there is no adjustment mechanism between life expectancy and retirement age, sudden changes in life expectancy will reduce the pension payment, and can lead to the losses of social welfare. Therefore, based on the findings of this paper, and in the context of the extended life expectancy of Chinese population, we suggest that the governments should consider building the adjustment mechanism of life expectancy and retirement age, and increase the retirement age along with the extension of life expectancy.
Journal of Finance and Economics,2018,Vol 44,No. 04
The lag of factor market reform is a prominent problem in China’s reform process, and the negative distortion of factor prices is an important indication. This paper studied the causes of factor price distortion from the perspective of state-owned enterprises. On the one hand, financial constraint and ownership discrimination made state-owned enterprises acquire a large amount of capital at below-market prices. It implies that when the proportion of state-owned enterprises increases, the price of capital decreases, thereby intensifying the negative distortion of capital price. On the other hand, state-owned enterprises have the ability and the incentives to pay higher wages to employees, possibly improving the negative distortion of labor price. The first reason is that, because the state-owned enterprises take multi-tasks, like maintaining social security and improving the income distribution, the government provides the subsidies, protection and preferential policies for SOEs in order to make up for their losses, thus making SOEs face less competitive pressure. The second reason is the governance structure of state-owned enterprises. In SOEs, the managers are more likely to form alliances with employees and pay higher wages to them. From this point of view, SOEs may reduce the negative distortion in labor price. In order to test the hypotheses above, this paper first measured capital price and labor price distortions in 171 three-digit industries using the Cobb-Douglas production function and the China Industrial Enterprise Database. The results shown that, the prices of capital and labor are depressed in most of the industries, and the capital price distortion is more serious than labor price distortion, and both capital price and labor price distortions shown an upward tendency within the sample period from 1998 to 2007. Then, it analyzed the effect of state-owned enterprises on factor price distortion by using two-way fixed effect model. The regression results shown that the impact of the proportion of state-owned enterprises on factor price distortion is asymmetric, that is, the higher the proportion of state-owned enterprises is, the more serious the negative distortion of capital price is, but the negative distortion of labor price decreases. Even after changing the measurement of the proportion of SOEs, the results are still robust. In order to deal with the endogenous problem, we chose the average age of firms within industries as the instrument variable for the proportion of state-owned enterprises, and the results are the same as the benchmark regressions. As Hsieh and Klenow (2009) used 10% as the capital price, we calculated the capital price distortion by using their data and repeated the ordinary least squares and instrument variable regressions. The above results still exist. This paper has important policy implications. Although the role of state-owned enterprises in improving the income of laborers is worthy of recognition, it is still necessary to reduce the proportion of state-owned enterprises in competitive industries, as the negative effect of SOEs on capital price distortion is much greater than the positive effect of SOEs on labor price distortion. Other effective ways to eliminate the distortion include deepening the reform of mixed ownership in SOEs, accelerating the reform of financial market, promoting the free flow of labor, reducing government subsidies and protection to state-owned enterprises, and expanding the opening-up. Those will help optimize the allocation of resources to improve the overall welfare level of society.
Journal of Finance and Economics,2018,Vol 44,No. 04
As important means of economic regulation and control, industrial policies have the vital strategic significance for the development of China’s economy. Above all, how to effectively guide the flow of economic resources to the policy-supported industries is essential to the effectiveness of industrial policies. Although previous studies have found that under the guidance of industrial policies the allocation of capital tilts to policy-supported industries, the existing literature only focuses on the resource allocation differences between the two groups of industries, namely, supported industries and non-supported industries. In other words, prior studies do not deeply examine how these additional economic resources allocate among different policy-supported industries as well as among different firms within certain policy-supported industry. More importantly, the existing studies examine the allocation of a certain economic resource separately (such as stock market, credit market or government subsidies) without any comprehensive discussion on the linkage between different types of resources allocation. This paper discussed in depth the allocation of resources among different policy-supported industries as well as among different firms within certain policy-supported industry. At the same time, this paper incorporated both credit resources, which are relatively more market-oriented, and government subsidies into the analytical scope. We empirically tested the capital allocation guided by industrial policies, and the different effects that market force and government support brought out. Thus we can provide a more comprehensive perspective for the allocation of resources under the industrial policies. Industrial policies guide market resources to the policy-supported industry group. Among these policy-supported industries, we expect that the growth sectors are more likely to be favored by the market because of their growth rates relatively faster than the mature ones. Further, within these policy-supported growth industries, due to economies of scale, there is a positive relationship between the development speed of a firm and its size (Hart, 1962). Therefore, in the policy-supported growth industries, the larger firms receive more market-oriented capital allocation. Based on the above analysis, we can see that, relying solely on market force, even backed by industrial policies, those in mature industries and those smaller firms in growing industries are still less able to obtain market capitalization. Thus, in order to achieve the ultimate goal of the industrial policies, the governments can use subsidies and other means to allocate a part of the capital to the firms encouraged by industrial policies but not favored by the market, so as to make up for the deficiencies in market allocation of resources. Using a sample from China A-share listed non-financial firms from 2001 to 2014, we found that because of the guiding force of industry policies, firms in policy-supported industries get more debt financing, and especially larger firms in growth industries benefit more. Meanwhile, industries supported by industrial policies also receive more government subsidies. Precisely, smaller firms in growth industries and larger firms in mature industries get more government subsidies. These results show that even capital allocation is guide by industrial policies, market force favor firms with higher growth opportunity; government subsidies support firms with lower growth opportunity, which are overlooked by the market force. In general, government subsidies play a supplementary role in the market-oriented capital allocation under industrial policies. This paper made in-depth analysis on the resource allocation under the guidance of industrial policies among the policy-supported industries as well as within certain policy-supported industry and comprehensively examined the different roles played by market force and government support. This paper provided a more complete theoretical analysis framework of the operational logic of the two alternative resource allocation mechanisms and empirical evidence. Overall, two forces of resources allocation were shown to be somewhat complementary, but not completely. Whether this incomplete complementarity is for a better support of the industries or is due to some inefficiency is worth further study. The Third Plenary Session of the 18th CPC Central Committee of China made it clear that the market should play a decisive role in the allocation of resources and a government plays a better role. Taking the allocation of resources in industrial policies as an object, this paper provided a good annotation of this major theoretical point of view and at the same time reference for how to coordinate the two mechanisms of the market mechanism and government support.
The power of intelligence element: the long-term impact of the prevention of iodine deficiency disorders on economic development in China
Journal of Finance and Economics,2018,Vol 44,No. 04
Summary: Disease is an important factor affecting economic development. Research has shown that the diseases like malaria, hookworm and HIV can significantly impede the human capital accumulation and economic development in the endemic regions around the world. Compared with diseases caused by parasite or virus, the diseases caused by micronutrients deficiency are less noticed. However, the impact of micronutrients deficiency could be severe, especially the deficiency of iodine. Iodine deficiency during pregnancy can hamper the brain development of fetus, leading to permanent intelligence damage. Because intelligence is an important factor for human capital accumulation, the prevalence of iodine deficiency is likely to have a negative impact on economic development. China’s large-scale campaign to prevent and control iodine deficiency since the 1970s could have significant impacts on economic development. Before the campaign, endemic iodine deficiency was found among all the provincial-level administrative regions except Shanghai; the number of iodine deficiency patients was estimated to be 35 million; about 200 thousand people were diagnosed as cretinism; and the population whose intelligence was slightly affected by iodine deficiency (subclinical cretinism) could be much larger than cretinism. Considering the severe threat of iodine deficiency, the Chinese government launched a large-scale campaign of iodine supplementation across the country since 1975. By 1985, 83.23% of the endemic countries and 87.3% of the population in endemic regions had been covered by salt iodization program. More than 22 million iodine deficiency patients had been treated in this period, and the birthrate of cretinism had been decreased by a great magnitude. Since the iodine supplementation campaign improved the iodine nutrition for a large population of China, it is likely to increase people’s intelligence and affect human capital accumulation and economic development in China deeply. This paper studies the long-term effect of iodine supplementation on individual height, education and income by using the micro-data provided by China Labor-force Dynamic Survey (CLDS) in 2012. Difference-in-difference model is used as our empirical strategy. The results show that: iodine supplementation during the early childhood has no significant impact on individual height, but iodine supplementation significantly improves individual education and income. If the incidence of cretinism increased by 1‰ before the iodine supplementation, the years of education for individuals born in that region after the iodine supplementation would increase by 0.562 years while the annual income would increase by 7.83%. Besides, we find the fetal stage is the most important period for iodine supplementation, and the effect of iodine supplementation after the fetal stage is much smaller. Therefore, iodine supplementation is an effective measure to boost economic growth by improving people’s intelligence and promoting human capital accumulation. This paper contributes to the current researches in the following aspects. Firstly, for the remarkable economic growth of China since the reform and opening-up policy, although many scholars have provided the explanation from the channels like political institutions, economic institutions and infrastructure, little attention has been paid to the important role of the large-scale campaign of disease prevention and treatment. Thus, this paper deepens our understanding of China’s economic miracle from a new perspective. Secondly, by studying the long-term impact of iodine deficiency prevention campaign, this paper also enriches the field of the long-term impact of historical events. Finally, our empirical findings provide guidance for the further insurance of people’s iodine nutrition and prevention of intelligence damage in poor regions.