Sam Hak Kan Tang

The dynamic interrelationships between the greater China share markets

This paper investigates the interrelationships between prices on the mainland Chinese share market and those in the neighbouring markets of Hong Kong and Taiwan. While there is a growing literature on interrelationships between share market including the emerging markets in Asia, very little is known about the role of mainland markets in the region. We consider the interrelationships between the Shanghai and Shenzhen exchanges and those in Hong Kong and Taiwan. We begin by combining the Shanghai and Shenzhen price indexes into a single value-weighted index and investigating its relationship to the indexes for Hong Kong and Taiwan. We find that the mainland markets are relatively isolated from the other two markets considered, although after the Asian crisis there is evidence that Hong Kong has weak predictive power for returns in the mainland. Hong Kong also clearly Granger-causes Taiwan although the reverse is not true. Both Hong Kong and Taiwan have strong contemporaneous relationships, a feature which is more market after the Asian crisis. We also analysed the two mainland markets separately, both by themselves and with Hong Kong. We found some predictability of thes prices in one market on the basis of lagged prices in the other although this was less apparent after the Asian crisis. Both before and after 1997, there were strong contemporaneous relationships between the two mainland markets, vindicating our earlier decision to treat them as a single market.

The efficiency of the Chinese stock market and the role of the banks

Abstract This paper examines the weak market efficiency and the role of the banks in the Chinese stock market. We consider both A and B shares traded on the Shanghai and Shenzhen stock exchanges using daily data for seven indexes for the period 1992–2001. We begin by an examination of the weak EMH and find evidence of departures from weak efficiency in the form of predictability of returns on the basis of their own past values. Over the period as a whole this was most marked for the B shares in both the exchanges and absent altogether in the index for the 30 leading stocks on the Shanghai market, suggesting that previously reported predictability may simply reflect thin trading. We go on to examine whether the efficiency was affected when banks were excluded from the stock market in 1996 and subsequently re-admitted in early 2000. We find that efficiency tended to be adversely affected when the banks were excluded.

The role of financial development in economic growth

In our previous progress report (Bloch and Tang, 2001), we review the literature relating to the role of technical change and productivity growth in East Asian economic growth. The topic of economic growth is central to development economics. Growth is one of the (if not the) major engine of improvements in living standards in the developing countries. Much recent work has addressed the potential links between financial development and economic growth. It is this literature which our current report addresses, both in the context of East Asia and more widely. Despite the rapidly growing literature, the debate concerning the role played by the development of financial intermediaries in economic growth is far from settled. The debate focuses on the possible causality running from financial development to economic growth on the one hand and the channels by which financial development contributes to enhancing economic growth on the other. In addition to outlining the main issues in the continuing debate and reviewing the existing literature, this paper also re-examines the data and conducts new tests on the topic. There are two alternative views about the links between financial intermediary development and economic growth. Joseph Schumpeter (1934) in 1911 was among the first to point out that banks facilitate technological innovation in their role of financial intermediaries. By assembling savings, evaluating investment projects, monitoring managers and facilitating transactions, banks are able to acquire detailed information about firms at a lower cost. They thus become the authorized agents of the society to allocate savings to entrepreneurs and to innovating and competitive firms. The Schumpeterian view is that the development of financial intermediaries has a direct impact on the pace of technical change and productivity growth, which feeds through Progress in Development Studies 3,3 (2003) pp. 243–251

Killing the Goose that Lays the Golden Egg: Institutional Change and Economic Growth in Hong Kong

This article examines how the rule of law and democratic accountability have affected Hong Kongs Gross Domestic Product (GDP) growth rate in the past 20 yr. We find that democratic accountability has deteriorated substantially since the changeover of sovereignty in 1997, while the rule of law has remained strong and stable. Empirical results from autoregressive distributed lag bounds tests show a positive long-run relationship between growth and democratic accountability, and Granger causality tests reveal that democratic accountability causes the growth rate of GDP in the short run. These conclusions are robust to control for the effects of investment and the Asian financial crisis in 1997.

Deep determinants of economic growth: institutions, geography and openness to trade

In our first progress report, Bloch and Tang (2001), we examined the importance of the ‘Solow residual’, or total factor productivity growth (TFPG), in the process of economic growth, particularly in the context of the East Asian economic growth ‘miracle’. We demonstrated that while TFPG has been less important in explaining growth in East Asia than in the advanced industrial economies, it still has played an important role in the susceptibility of some of these economies to shocks, particularly the crisis of 1997 (see Tang, 2002, for application to a broader set of countries). In our second report, Bloch and Tang (2003), we focused on the role of financial development and its link to capital accumulation and economic growth. We concluded that while financial development is clearly an essential part of the growth process, it has not been demonstrated, particularly in the context of East Asian growth, that such development is a precondition for economic growth. We are left with a view that both TFPG and financial development are important to economic growth, but that neither is necessary. More importantly, we are left without an explanation of the underlying forces behind economic growth and development. Knowledge of the process of economic growth and development has evolved substantially over the past five decades. In particular, there is now a general view that the neoclassical model of growth that emerged in the 1950s, particularly Solow’s (1956 and 1957) path-breaking contributions, offers neither an explanation of the experience of the Third World countries nor practical guidance for sustained economic development. The main problem is that the neoclassical model focuses on the ‘proximate determinants’ of growth that appear in the neoclassical growth equation, particularly capital accumulation and TFPG. We learn little from the model about what drives TFPG and how to improve it. Moreover, the same problems

The link between growth volatility and technical progress: cross-country evidence

Abstract This paper provides strong evidence showing that the rate of technical progress plays an important role in stabilizing business cycle volatility. Empirical tests consistently indicate that business cycle volatility diminishes with increasing rates of technical progress. Using alternative estimates of technical progress and datasets do not alter the conclusion.

Technical change and total factor productivity growth: a study of Singapore's manufacturing industries

The paper focuses onthe difference between the dual rate of technical change and the total factor productivity growth (TFPG). It estimates directly the dual rate of technical change from an integrated model that describes the cost structure and equilibrium condition of Singapores manufacturing industries. It then calculates TFPG using the conventional productivity accounting approach. By showing the difference between the two measures, it is demonstrated that the non-parametric calculated TFPG cannot be interpreted wholly as a cost saving technical change since the preconditions required in the calculation of TFPG are not met. It is found that the majority of Singapores manufacturing industries exhibit, on the one hand, substantial increasing returns to scale and, on the other hand, no significant technical change. However, the largest and fastest growing industries such as Electronic Products and Components show both significant cost-saving technical progress and decreasing returns to scale.

Maids or mentors? The effects of live-in foreign domestic workers on children's educational achievement in Hong Kong

This paper studies the effects of live-in foreign domestic workers (FDWs) on school childrens educational outcomes using samples from two population censuses and a survey data set. The evidence consistently points to Filipino FDWs improving the educational outcomes of school children by decreasing their probability of late schooling or increasing their scores of core academic subjects. English-speaking ability and maturity are shown to be the most important assets of the Filipino FDW in improving childrens educational outcomes. These findings suggest that FDWs provide an important childrearing service.

The role of technical change and productivity growth in East Asian economic growth

Economists have long recognized the central role played by technological innovation in economic progress. Joseph Schumpeter (1942), for example, argued that the main source of economic growth derives from innovation in the forms of new product, new process, new markets and new management methods. The experience of industrialized countries in the last century has demonstrated the importance of this insight. It has been pointed out that successive waves of technical change fueled the growth of industrialized countries in the West since the Industrial Revolution and that: ‘. . . the successive industrial revolutions were based on the qualitative transformation of the economy by new technologies, rather than the simple quantitative growth of individual industries’ (Freeman and Soete, 1997: 20). In US, in particular, empirical findings show technical advance as the main contributor of US growth over the period 1929–1969 (Denison, 1974). An explosion of interest has focused on the developments of East Asian economies, which have been enjoying rapid growth for the past three decades (see Table 1). Hong Kong, for example, averaged 7.5% annual growth over the period 1970–1996, an impressive growth figure that is at par with other East Asian economies such as Korea, Singapore, Taiwan and Thailand. At such growth rates, these economies are able to double their real production every ten years. However, the crisis of 1997–1998 has added to previously expressed doubts about the sustainability of this growth. Progress in Development Studies 1, 4 (2001) pp. 329–336

Parents, Migrant Domestic Workers, and Children’s Speaking of a Second Language: Evidence from Hong Kong

This paper explores the effects of different language home environments provided by English-speaking and non-English-speaking migrant domestic workers (MDWs) on Hong Kong children’s ability to speak English. To isolate MDWs’ language effect from parental and family effects, I use between-siblings comparisons and an empirical model of language acquisition. Results from between-siblings comparisons reveal a clear sign for the positive language effect of English-speaking MDWs. Estimates of the language acquisition model show that a child who is cared for by an English-speaking MDW and who has a bilingual mother is 45 percent more likely to speak English.