Julan Du

Channels of Interprovincial Risk Sharing in China

This paper decomposes consumption risk sharing among provinces in China over the 1980-2007 period. We find that 9.4 percent of the shocks to gross provincial product are smoothed by the interprovincial fiscal transfer system. This system also cushions a relatively large fraction of the province-specific shocks in the coastal provinces of China. Using a variety of indicators, we explore non-fiscal channels of consumption risk sharing. We find that the migration of rural labor to urban areas and the remittance of migrant wages play important roles in promoting interprovincial consumption risk sharing in the inland provinces of China. In contrast, the extent of risk sharing through financial intermediaries and the capital markets is very limited. These factors have resulted in a low degree of risk sharing among Chinese provinces, especially over the last decade.

Why do multinational enterprises borrow from local banks

Abstract Multinational enterprise subsidiaries typically borrow from multiple banks including local banks. Bank co-financing with local bank participation hardens budget constraint because local banks have strength in seizing firm assets in liquidation. Monitoring by both local and home banks also enhances efficiency.

CORRUPTION AND CORPORATE FINANCE PATTERNS: AN INTERNATIONAL PERSPECTIVE

This study demonstrates the importance of government corruption in shaping corporate finance patterns across countries. Corruption contributes to a more prevalent and higher degree of corporate equity ownership concentration and more reliance on bank financing in raising external finance. It argues that corporate governance under corrupt governments is particularly poor. Firm management, taking advantage of political capital acquired through bribery, is especially powerful in expropriating from outside investors. Ownership concentration and reliance on bank financing are means of mitigating the corporate governance problem under a corrupt government. Copyright 2008 The Author. Journal compilation 2008 Blackwell Publishing Ltd

Channels of Interprovincial Consumption Risk Sharing in the People’s Republic of China

This paper analyzes consumption risk sharing among provinces in the People’s Republic of China (PRC) during 1980–2007. The analysis finds that 9.4% of shocks to gross provincial product are smoothed by the interprovincial fiscal transfer system. This system also cushions a relatively large percentage of province-specific shocks in coastal areas. Using a variety of indicators, we explored nonfiscal channels of consumption risk sharing. We found that the migration of rural labor to urban areas and the remittance of migrant wages play an important role in promoting interprovincial consumption risk sharing in inland PRC provinces. In contrast, the extent of risk sharing through financial intermediation and capital markets is very limited. These factors have resulted in a low degree of risk sharing among provinces, especially during the last decade

Does Insider Trading Raise Market Volatility

This paper studies the role of insider trading in explaining cross-country differences in stock market volatility. It introduces a new measure of insider trading. The central finding is that countries with more prevalent insider trading have more volatile stock markets, even after one controls for liquidity/maturity of the market, and the volatility of the underlying fundamentals (volatility of real output and of monetary and fiscal policies). Moreover, the effect of insider trading is quantitatively significant when compared with the effect of economic fundamentals.

Endogenous, Efficient Long‐Run Cyclical Unemployment, Endogenous Long‐Run Growth, and Division of Labor

The paper uses a dynamic equilibrium model to explain the concurrence of economic growth and business cycles. Introducing durable goods into a model with ex-ante identical consumer-producers and economies of specialized learning-by-doing, the author shows that when job-shifting costs, economies of specialized learning-by-doing, and trading efficiency are sufficiently large, a dynamic equilibrium with business cycles and unemployment might be Pareto superior to noncyclical growth patterns. Long-run cyclical unemployment still exists when the credit market is imperfect. Extending the model into overlapping generations framework, the author shows that complete division of labor with business cycles would still occur in equilibrium. Copyright Blackwell Publishing Ltd 2003.

Bank Loans and Trade Credit Under China's Financial Repression

China has maintained a financial system with favorable treatments toward state-owned enterprises. Albeit having been denied access to formal financing such as bank loans, Chinas non-state firms have grown rather fast. Chinas experience has often been interpreted as indicating that alternative informal financing channels such as trade credit can substitute for formal financing and support firm growth. In this study, we systematically compare the relative importance of bank loans and trade credit in promoting firm performance and firm growth, and find that access to bank loans is more important than does availability of trade credit. Our results imply that firms cannot get around financial repression through alternative financing channels, and suggest that it is an imperative to dismantle the financial repression regime so as to promote firm growth and performance.

Property Rights Protection and Allocation of Investment: Evidence from China's Private Firms

Property rights protection has been found to promote economic growth at the macro level, and affect the incentive for investment at the micro level. What is not clear is whether and how property rights protection affects a firms allocation of investment across industries for a given size of investment. In this paper, using a survey data set of private enterprises in China, we find that weaker property rights protection causes firms to invest in a wider range of industries. We then explore several possible channels through which property rights protection may affect the allocation of investment across industries.

China as a Regulatory State

Market economy models differ in the degree of the power of the government vis-a-vis the market in the economy. Under the classications set forth by Glaeser and Shleifer (2002, 2003), and Djankov et al. (2003), these market models range from those emphasizing low government intervention in the market (private orderings and private litigation through courts) to those where the state is an active participant (regulatory state). This paper, using data from a survey of 3,073 private enterprises in China, constructs an index to quantify the power of the government vis-a-vis the market. Regional government power is found to vary considerably across Chinas regions. Notably, enterprises located in regions where government exerts more power in the market perform better, suggesting that the regulatory state model of the market economy is appropriate for China.

Institutions, Culture Distance, and FDI Location Choice: Evidence from China

Using an extensive data set on foreign invested enterprises (FIEs) in the Chinese mainland, we compare the sensitivities of the location choice of foreign direct investment (FDI) from six major source countries/areas (Hong Kong, Taiwan, US, EU, Japan and Korea) toward the variation in the strength of economic institutions across Chinas regions. It is found that FIEs from the source countries/areas that are culturally more remote from China often exhibit a stronger aversion to regions with weaker economic institutions. Moreover, this pattern is often more salient when FDI takes the form of fully-owned enterprises (FOEs) than when it takes the form of joint ventures (JVs).