The Journal of World Economy 2023, No.2
Uncertainty Shocks, Credit Resource Misallocation and Monetary and Fiscal Policy Effectiveness
Wang Yizhong; Zheng Bowen; Wu Jieran
Abstract：Credit resource misallocation is a significant symptom of financial and real economic mismatch. Uncertainty shocks make this problem even worse. Based on empirical facts, this paper constructs a multisectoral general equilibrium model to investigate the mechanisms and effects of uncertainty shocks on credit resource allocation. The study reveals that (1) A rise in uncertainty shocks affects banks’ ability to recognize and judge risk, leading to banks trading off credit demand factors between high- and low-productivity firms. Consequently, their credit supply behavior differs between the two types of firms, resulting in a different allocation of credit resources in response to uncertainty shocks; (2) in response to uncertainty shocks, the effect of implementing expansionary monetary policy is limited, while implementing structural fiscal policy tools of guarantees and bailouts can effectively enhance commercial banks’ intention to lend, improve credit availability for high-risk enterprises, effectively improve investment and financing anticipation, and mitigate the degree of credit resource mismatch.
Key words：uncertainty shocks, heterogeneity of firm risk, credit resource misallocation
JEL codes：E32; E44; E52; D81; D82
My People, My Homeland: Migration and Inter-Provincial Trade in China
Zhang Penglong; Han Tiankuo
Abstract：This paper embeds migrant taste bias into a structural gravity model and quantitatively studies how bilateral migration impacts inter-provincial trade through taste channels. Using trade data and migration data from multiple sources, we estimate the home bias of migrants in tastes from each province. The results show that for every 1 yuan of the total expenditure, each consumer spends 29 cents more on products from her home province than the unbiased level, given all else equal. The migrants’ taste bias is robust with the instrumental variables. The policy implication is that domestic migration is an important way to promote inter-provincial trade and market integration during the new development stage of the “dual circulation” of China.
Key words：home bias, gravity, border effect, dual circulation, migration
JEL codes：D10; F11; F14; F22.
Cross-Border Travel,“Soft Information”and International Trade
Shi Bingzhan；Xiong Zhi
Abstract：This paper focuses on the research field of the economic effect of cross-border travel, and specifically discusses how cross-border travel promotes the development of Chinese import trade through the transmission of “soft information”. Taking Chinese visa-free-entry policy as a verifiable quasi-natural experiment, we use difference-in-differences(DID) to identify the impact of cross-border travel on Chinese goods import. We find the facilitation of cross-border travel increases the enterprises’ import value along the expansion margin, and promotes general trade, high-tech products and capital goods trade. This mechanism is the decline of information cost due to “soft information” flow, which reduces search cost to screen high-quality partnerships and trust cost to continuously expand the positive trade effect. Further, this impact is benefit from the complementarity of the modern information and communication technology, and the domestic travel facilitation. The conclusion of this paper means that “soft information” is an important resource in the digital economy era, and the flow of people plays an vital role in the development of high-quality openness.
Key words：cross-border travel, “soft information”, import trade, visa-free-entry policy
JEL codes：F14; F22
Firm Entry and Industrial Chain Upgrading: Evidence from China’s Drone Industry
Chen Zhao; Chu Yunyun
Abstract：This work investigates the effect of the market environment, especially the industrial chain base, on firm entry and the industrial upgrading of emerging industries in the absence of policy support. Using China’s drone industry, it directly identifies and measures upstream-related industries for the first time. The study reveals that the upstream industrial base not only benefits the entry of drone manufacturers, but also promotes their production transfer from consumer drones to industrial drones through a vertical spillover effect to facilitate the industrial upgrading of drones. The conclusion of this paper provides new empirical evidence for spatial sorting and industrial upgrading of emerging industries in the market environment. The results also show the feasibility of promoting the optimisation of the economic system by improving the innovative capacity of the industrial chain, which is conductive to the implementation of the policy on “closely following the supply chain to deploy innovation chain and constantly enhancing technological capabilities”.
Key words：emerging industries, firm entry, industrial upgrading, vertical spillover
JEL codes：L11; L62; O14; O33
Firm Pairing Assistance and Foreign Direct Investment at the County Level
Zhou Xinyu; Zhang Xuezhi; Zhou Zixun; Wu Wenxin
Abstract：Using listed firms’ poverty alleviation disclosure policy issued by China Securities Regulatory Commission in 2016 as a quasi-natural experiment, this paper manually collects information from the annual reports of listed firms and constructs a difference-in-differences model to empirically test how pairing assistance between firms and targeted counties affects counties’ foreign direct investment. The results demonstrate that corporate pairing assistance can significantly improve FDI inflows at the county level. This conclusion remains robust after considering endogeneity issues and robustness checks. Combined with county and firm characteristics data, this paper reveals that firms reduce information asymmetry through foreign investment linkages, and they improve foreign investment expectations for county development, thereby promoting foreign direct investment. Further analysis demonstrates that there is a scale effect, a local knowledge effect and east-west complementarity in the pairing assistance process. This study sheds new light on the externality and social welfare of corporate social responsibility and provides practical implications for the future improvement of pairing assistance.
Key words：pairing assistance, foreign direct investment, ESG, reputation insurance, signal transmission
JEL codes：F21; M14; G30
How Does the “Promotion of Construction by Upgrading” of Development Zones Affect Urban Carbon Productivity?
Liu Binglian; Sun Pengbo
Abstract：Optimising the supply of industrial policies is key to achieving green, low-carbon and high-quality development under the “dual carbon” constraint. This paper uses pollution data from cities and enterprises and adopts the difference-in-differences (DID) and the synthetic difference-in- differences (SDID) techniques to study the impact of upgrading provincial development zones on urban carbon productivity. The study finds the following：(1) Upgrading development zones improves the carbon productivity of cities. This conclusion is established in a series of robustness tests. (2) Following the improvement of the development zone, strict environmental regulations, optimisation of the business environment and increased support have achieved the goal of strengthening the market, reducing mismatches, adjusting the input element structure, enhancing innovation, promoting transformation, and improving carbon productivity. The above effects originate from stricter evaluation and incentivisation, a reduction in local interference, a decentralisation of policy-making power, and the “preferential compensation effect” of centralised provision of industrial policies. (3) Upgrading development zones further increases the carbon productivity of the Midwest and industry-dependent cities. This paper provides a useful reference on how to make good use of industrial policies to achieve high-quality social and economic development under the “dual carbon” goal.
Key words：upgrading development zones, carbon productivity, difference-in-differences (DID), synthetic difference-in-differences (SDID)
JEL codes：Q25; Q48; R58
Competition Model, Fiscal Adjustment and the Core Competitiveness of Firms
Liu Qiren; Yuan Jin; Huang Jianzhong; Feng Guimei
Abstract：One of the most important objectives of supply-side structural reform is cultivating the core competence of firms. Taking VAT rebates as an example, this paper constructs a multi-product business model that differentiates “quality-based competence” from “cost-based competence” to analyse how fiscal adjustment affects firms’ core competitiveness. Theoretical research shows that there are significant differences in product pricing and the mode of competence between firms producing homogeneous and differentiated products. The pricing of products with core competence is higher in firms producing differentiated products, so firms choose the mode of “quality-based competence”, while firms producing homogeneous products choose the opposite. On the other hand, an increase in the VAT rebate rate promotes the core competence of firms producing differentiated products, while it obstructs the core competence of firms producing homogeneous products. Coincident data from Chinese customs and industrial enterprises from between 2002 and 2013 provide robust verification of key model predictions.
Key words：fiscal adjustment, VAT rebates, homogeneous products, differentiated products, core competence
JEL codes：F10; F13; D50
Fintech, Bank Liabilities and Competition
Jia Dun; Han Haozhe
Abstract：This work presents a model that characterises the existing competition in the deposit market between the traditional banking sector and a sector powered by fintech (financial technology) that sells wealth management products through a digital platform, as well as competition for liabilities within each sector. Combined with empirical analysis, the paper explores how the rapid development of the fintech-based wealth management sector affects the deposit growth of China’s traditional commercial banks. The theoretical results of the model suggest that the fintech sector expansion outside the traditional banking sector has two offsetting effects on bank deposits-a cross-sector substitution effect and an overall wealth effect. When there is limited market competition within the commercial banking sector, the cross- sector substitution effect-by which the fintech expansion in the non-banking sector inhibits the growth of the scale of commercial bank deposits-dominates. The paper also presents model-consistent empirical evidence based on prefecture-level data. The results reveal that, on average, fintech expansion in the non- banking sector does not affect the growth of commercial bank deposits, but it significantly alters their distribution and growth trend across regions, i.e. the fewer commercial bank branches there are operating locally, the lower the growth rate of local bank deposits. Fintech expansion in the non-banking sector also increases the share and relative growth rate of platform-based wealth management above those of traditional bank deposits among households. This paper proposes a series of policy suggestions to regulate and guide the healthy and orderly development of the internet finance industry and platform economy, supporting the improvement of the operational efficiency of commercial banks, deepening market-oriented interest rate reform and promoting the coordinated development of regions.
Key words：fintech, platform-based wealth management, banking competition
JEL codes：G21; D40; E43
The Measurement of Implicit Government Guarantees: A Literature Review
Meng Shichao; Wang Qing
Abstract：It is increasingly important to effectively measure implicit government guarantees in new period, and the research field remains uncharted territory. We redefine implicit government guarantee and examine the specificity of its measurement with the research logic of implicit things. We classify the existing measurement methods into “direct measures” and “indirect measures” according to their objectives, and systematically review the related literature. The direct and indirect measures respectively focus on the absolute and relative value of guarantees. In current application, the two methods have large model setting errors, estimation errors and representative errors, respectively. In this regard, we discuss the future research directions. The direct measures should build structural models under more realistic cash flow structures and guarantee rules, and characterize beliefs by means of “abnormal” states. The indirect measures should concentrate on the guarantee generation mechanism, broaden the range of guarantee sources, and pay attention to the guarantee belief correction.
Key words：implicit government guarantees, belief, direct measures, indirect measures
JEL codes：G13; G32; G38