C. Simon Fan

THE LAW OF ONE PRICE: EVIDENCE FROM THE TRANSITIONAL ECONOMY OF CHINA

This paper applies the recently developed econometric methods of panel unit root tests and nonlinear mean reversion to investigate price convergence in Chinathe largest transitional economy in the world. We find that prices did converge to the law of one price in China for an overwhelming majority of goods and services, based on a large panel data set. The finding sheds light on the extent of the market economy in China, and casts doubt on Youngs proposition that the economic reform has led to the fragmentation of Chinese domestic markets.

The Brain Drain, 'Educated Unemployment', Human Capital Formation, and Economic Betterment

Extending both the “harmful brain drain” literature and the “beneficial brain gain” literature, this paper analyzes both the negative and the positive impact of migration by skilled individuals in a unified framework. The paper extends the received literature on the “harmful brain drain” by showing that in the short run, international migration can result in “educated unemployment” and overeducation in developing countries, as well as a brain drain from these countries. A simulation suggests that the costs of “educated unemployment” and overeducation can amount to significant losses for the individuals concerned, who may constitute a substantial proportion of the educated individuals. Adopting a dynamic framework, it is then shown that due to the positive externality of the prevailing, economy-wide endowment of human capital on the formation of human capital, a relaxation in migration policy in both the current period and the preceding period can facilitate “take-off” of a developing country in the current period. Thus, it is suggested that while the migration of some educated individuals may reduce the social welfare of those who stay behind in the short run, it improves it in the long run.

The Prospect of Migration, Sticky Wages, and 'Educated Unemployment'

An increase in the probability of work abroad, where the returns to schooling are higher than at home, induces more individuals in a developing country to acquire education, which leads to an increase in the supply of educated workers in the domestic labor market. Where there is a sticky wage-rate, the demand for labor at home will be constant. With a rising supply and constant demand, the rate of unemployment of educated workers in the domestic labor market will increase. Thus, the prospect of employment abroad causes involuntary “educated unemployment” at home. A government that is concerned about “educated unemployment” and might therefore be expected to encourage unemployed educated people to migrate will nevertheless, under certain conditions, elect to restrict the extent of the migration of educated individuals.

Do the Rich Save More? A New View Based on Intergenerational Transfers

Do richer people have higher saving rates? The short-run and long-run consumption functions have different answers to this question, which results in the “consumption puzzle” that was a focus of macroeconomic research in the 1950s and 1960s. In a recent empirical contribution, Dynan, Skinner, and Zeldes (2004) revive this old question and make this “consumption puzzle” more intriguing, by showing that the average propensity to consume decreases not only with current income but also with lifetime income. This paper provides a model that helps resolve this puzzle from an intergenerational perspective.

Culture, Institution, and Development in China : The economics of national character

How does culture shape history--and history shape culture? This book aims to help answer this question by conducting a comprehensive and rigorous analysis of the evolution of the Chinese culture, political and legal institutions, and “national character” throughout historical and contemporary China. By repeatedly applying the “political Coase theorem” and utilizing other economic theories, it investigates how a “national character” evolves endogenously along with an institutional environment, which is in turn determined by economic, political, and geographical fundamentals. In a recent influential book, North, Wallis, and Weingast (2009) emphasize the importance of controlling violence to maintaining social order. They argue that successful societies can control violence at a relatively low cost, and that successful economic organizations can operate only in violence-free environments. This book extends North, Wallis, and Weingast (2009) in two ways. First, it incorporates the role of “personality” into analysis of violence and social order. In a society where people worship bravery and violence, violent actions are often committed frequently between different individuals and groups. However, the individuals in a society that treasures courtesy and kindness usually engage in little violent conflict. The “personality” described in this book refers to the “average personality” of a country’s people, rather than the personality of a particular individual. In the sociology and political science literature, the “average personality” of a country is often referred to as “national character” (e.g., Adorno, Frenkel-Brunswik, Levinson, and Sanford (1950), Barker (1979), Sniderman (1993)). Although “personality” may include multiple dimensions, this book focuses on a people’s tendency toward violence, which is the central element of North, Wallis, and Weingast (2009). Second, this book contends that a people’s violent attitude is a double-edged sword for the state. Although it is more costly for a state to manage a people who exhibit more violent