Elliott Parker

Labor productivity and migration in Chinese agriculture A stochastic frontier approach

Abstract The authors use a stochastic frontier approach with an endogenous error specification to measure Chinas agricultural labor requirement. They measure a significant apparent labor surplus, but find that it is correlated with factors that affect the incentives of farmers to leave the land. Thus their findings support the hypothesis that declines in the agricultural labor force are not adequately measured, whereas their surplus estimates are generally consistent with other studies using other approaches. The measured surplus ranges from 35% to 40% of the labor force, with significant differences by region. By 1995, there were perhaps 120 million farmers who were either in fact or potentially better employed elsewhere.

Asian finance and the role of bankruptcy: a model of the transition costs of financial liberalization

Abstract The degree to which bankruptcy is permitted to play a role in the allocation of capital is a key distinction of the state-directed financial regime of Japan, South Korea, and many other Asian economies. Focusing on the development and characteristics of the Japanese main-bank system and comparing it to the Anglo-American approach, this paper discusses the two approaches to finance and argues that a major problem with the bank-finance model used in many Asian countries is its minimization of bankruptcy risks. A three-sector development model is described and simulated to compare the outcomes of the two approaches separately and then to evaluate the transition costs of switching from a state-directed to a market-directed financial regime. The simulation results suggest that the market approach results in a higher long-run growth path because it eliminates inefficient firms through bankruptcy. The results also suggest that switching from a state-directed to a market-directed model can be very costly to the economy. These transition costs can be lowered by a phased-in liberalization but are increased by delay. We then discuss the policy implications.

The effect of scale on the response to reform by Chinese state-owned construction units

Abstract Using firm-level data on large and medium state-owned construction units, a production function approach evaluates the effect of scale on the response of Chinese state enterprises to reform. Large state units have greater economies of scale, but are less productive and less input price efficient as investment increases in nonproductive fixed assets. Large unit profits are declining fastest, and a comparison of coastal, interior, and ministry-level units contradicts the hypothesis that competition is the primary source of this decline. Instead, falling profits are explained by the increased autonomy which allows these units to be more inefficient.

FINANCIAL LIBERALIZATION IN CHINA - Limitations and lessons of the Japanese regime

China has reformed old socialist banking institutions, using the Japanese financial regime as a model. We explain why this regime can perform well in the short run but will ultimately lead to serious economic problems, as exemplified by the recent Asian financial crisis, and we explain the problems and consequences of financial liberalization. We conclude with a summary of lessons Chinas reformers should learn from the recent financial experiences of their Asian neighbors.

SCHUMPETERIAN CREATIVE DESTRUCTION AND THE GROWTH OF CHINESE ENTERPRISES

This paper simulates Schumpeterian Creative Destruction to study the potential impact of bankruptcy on Chinese economic growth. When the least efficient firms in each period are shut down, technological progress occurs by selection, yet a portion of the economys productive potential is destroyed. As a result, industries without shutdown, such as those found in Chinas socialist economy, attain faster initial growth rates. Upon reaching maturity, however, these industries are outperformed by those with shutdown. The relative performance of socialist versus market industries depends, of course, on many factors. These include the number of fiis closed, the dispersion of technology, depreciation and savings rates, the degree of diminishing returns, the method of allocating investment, and the scrap value of existing capital stock. The effect of these factors is estimated with a Monte Carlo response function. Creative Destruction can help explain the high growth of Chinas rural township and village enterprises, as compared to more mature state-owned enterprises. Immature industries grow faster because relatively inefficient firms remain small. In mature industries, however, inefficient firms may be quite large due to past performance, and diminishing returns to investment increase the relative importance of technological progress. If rural enterprises remain socialist enterprises protected from shutdown, growth will eventually

Economic and Financial Reform: Alternatives for North Korea

IntroductionMore than 50 years after the signing of the cease-fire at Panmunjon, North Korea stands virtually alone as one of the last of the classical command economies. Like its other centrally managed counterparts, the North Korean economy was able to achieve reasonably rapid rates of growth through forced savings and high rates of investment, at least through the i970s. By the i980s, however, the economy began to stagnate and during the 1990s, as the political legitimacy of other command economies collapsed and trade relations deteriorated, the North Korean economy began a sustained decline exacerbated by bad weather and critical shortages of energy. According to estimates from the Bank of Korea (BoK, 2004), North Koreas per capita income in 1998 was only half of what it was in 1990.Reforms initiated in 2002, combined with some signs of interest in further reform from leaders in Pyongyang, have given a number of outside observers hope that North Korea is now seriously pondering more radical reforms that may finally lead to a significant and sustainable improvement in the standard of living for its 22 million citizens. There are many issues to be decided should North Korea embark on a reform process; however, reforms directed toward the financial system are fundamental to both extensive and intensive growth. Rapid extensive growth results from the combination of generating a high savings rate and investing these savings in projects with higher social returns. Classical socialist (i.e., command or centrally planned) economies are usually able to accomplish the former through administrative control over prices and limited production of consumer goods. The state is able to control how these savings are allocated through the state banks monopoly over the financial sector; however, the institutions of the centrally planned economy have di[double dagger]culty ranking projects according to their social return. Intensive growth requires continued improvements in labor productivity, and though command economies can be successful at increasing the availability of education, they perform poorly at providing the incentives for such sustained improvement in productivity. In particular, a major source of productivity improvement is in the continuous selection of better technologies and production arrangements, a process requiring that ine[double dagger]cient operations be regularly shut down and resources shifted to other, more successful ventures.Financial sector reform is fundamental to supporting sustained extensive and intensive development because the financial system institutionalizes the saving and investment process, provides a system to evaluate and monitor credit risk, and imposes penalties for ine[double dagger]cient uses of capital. How financial reform is pursued in the development process determines the overall path of development.The rest of the paper is organized as follows. First, we review North Koreas macroeconomic performance and recent reforms to improve e[double dagger]ciency. This review relies heavily on Ahn (2003), Babson (2004), and Dwor-Frecaut (2004). Second, we review the general transformation of economic systems during the past three decades, from state-directed to market-directed regimes, in socialist and non-socialist economies, and note that the financial system is usually the first sector to liberalize. Third, we discuss the reform process in China as it shifted toward more marketdirect structures, and we suggest that China o∂ers the most useful lessons for North Korea; however, we also emphasize the policy errors that China has made with regard to financial sector reform that can potentially limit the outcome of the overall reform process. The specific problems with China reflect a more general problem that even less state-directed financial regimes such as Japan and South Korea have experienced. Fourth, we discuss the role of bankruptcy in the financial regimes of China, Japan, and South Korea. …

Relative efficiency in Chinese urban construction: A comparison of state-owned and collective enterprises after reform

Abstract This paper estimates the relative efficiency of locally-controlled urban collective and provincially-controlled state-owned enterprises in the Chinese construction industry between 1985 and 1988, a period following significant economic reforms. A generalized restricted translog cost function approach is used which allows for both fixed and variable factor choices to deviate from profit-maximizing outcomes. Results indicate that collectives were less efficient in this sample than state-owned enterprises in the use of variable inputs, and this gap was not closing by 1988. State-owned enterprises were, however, much less efficient in the use of capital, even when the measure of capital is adjusted for a relatively higher percentage of nonproductive investment. For both sectors of Chinese construction, the growth rate of total factor productivity (or average technical efficiency) rose to approximately four percent per year by 1988, but this improvement did not extend to more cost-efficient combinations of inputs.

Japanese economic structures and finance: characteristics and causes of the current slowdown

The Structural Foundations of International Finance examines the ways in which national economies, especially those of industrialized countries, are affected by the operations of international financial markets. Although these markets provide productive funding, there is also much speculative trading in stocks and currencies which can cause booms, slumps and hinder recovery. The authors advocate entrepreneurial coordination by productive enterprises for balanced and stable growth, with reduced risks of financial crises and recessions.