The Journal of World Economy 2023, No.6
Trade and Welfare Effects of Liberalisation of Trade in Services under the RCEP
Zhang Qun; Qiu Bin; Sun Shaoqin
Abstract：Abstract: Trade in services is an important field in relation to China’s international trade and economic cooperation. Compared to the rapid growth of the domestic services sector, China’s services trade development remains relatively inadequate, and its structure is certainly unbalanced. The signing and entry into force of the Regional Comprehensive Economic Partnership (RCEP) agreement provides an effective framework for progress and an international layout from a perspective aimed at deepening foreign cooperation in trade in services. By connecting RCEP members’ detailed commitment rules and regulations on liberalisation of trade in services, together with the assessment framework of the services trade restrictiveness index and the weighted average tariff reduction rate of each member’s trade in goods, this paper quantifies the degree of liberalisation of trade in services and goods among member countries in order to estimate the trade and welfare effects brought about by RCEP using the structural model method in a multi-country multi-sector general equilibrium model that includes input-output linkages. The results of the study indicate that by considering the liberalisation of trade in goods and services at the same time, the entry into force of RCEP improves real wages in all member countries as well as the welfare effects in most. During the first year of implementation, China’s real wages and welfare effects increased by 0.63% and 0.02% respectively. China’s trade structure is also more service-oriented, with the price index and production costs declining relatively. A comparison of the results obtained by considering and ruling out the liberalisation of trade in services reveals that the fact of considering it leads to a greater improvement in real wages and welfare effects, a re-strengthening of trade linkages among member countries and a further decline in China’s price index and production costs. The findings of this paper reflect the trade and welfare effects of services trade liberalisation from the perspective of input-output linkages in multiple respects.
Key words：Key words: Regional Comprehensive Economic Partnership (RCEP), liberalisation of trade in services, structural estimation, welfare effect, elasticity of trade in services
JEL codes：JEL codes：F17; F41; O24
Export VAT Rebate Policy Uncertainty: Measurement and Impact on China’s Export Growth
Zhang Yanzhe；Xu Helian；Shao Xiaokuai
Abstract：Abstract: Based on library data of export VAT rebate rates and customs data from 2004 to 2015, this paper uses the unexpected fluctuation of export VAT rebate rates to quantify the uncertainty of China’s export VAT rebate policy. The paper presents its stylised facts and investigates its influence on China’s export growth from a theoretical-empirical perspective. Based on the study, several results are obtained, as follows. (1) Export VAT rebate policy uncertainty varies substantially across products, time periods and industries. (2) This policy uncertainty reduces the expected profit and optimal output of exporting firms and has an adverse effect on the ordinary trade export growth rates applicable to export VAT rebate methods, while it has no effect on those of processing trade. (3) When decomposing the total value of ordinary exports, it is found that the growth rate of the number of export relations and the average volume of sales decreases, while the average price growth rate increases slightly under the export VAT rebate policy uncertainty. (4) These effects are only manifested in the newly incoming export relations. Overall, the findings suggest that when general trading firms face a greater export VAT rebate policy uncertainty, they become more cautious when entering the export market and are more likely to adopt a low-quantity high-price strategy to ensure profitability.
Key words：Key words: export VAT rebate, policy uncertainty, export growth, ordinary trade
JEL codes：JEL codes：F13; F14; D80
Geography of Public Sector Employment, Labor Allocation and Social Welfare Improvement
Niu Jing; Sun Siyang; Wei Xiujian
Abstract：Abstract: The efficient allocation of public sector employment across regions is of paramount importance for an adequate and reasonable assignment of public services and the improvement of social welfare. This paper quantifies the impact that the regional distribution of employment in the public sector has on labor allocation and social welfare. It develops a spatial general equilibrium model with the public sector and labor mobility and uses prefecture-level city data to calibrate and estimate its parameters. The study finds that the distribution of public employment in China between 2005 and 2018 is skewed towards less populated areas, leading to social welfare losses. Counterfactual simulation shows that one-size-fits-all policies aimed at reducing public employment offer only a limited effect, while reallocation policies turn out to be more effective. Optimal reallocation policies also require a category-based approach in which more public employment is deployed in areas with a large population and a high proportion of non-tradable sectors, thus facilitating the efficient allocation of labor across regions and sectors.
Key words：Key words: public sector, labor market, spatial equilibrium, social welfare
JEL codes：JEL codes：J45; J61; R13
Rigid Redemption Belief Differentiation: Implicit Guarantee Expectations and Pricing of Municipal Investment Bonds
Cao Jing
Abstract：Abstract: Based on quarterly bond issuance and transaction data between 2019 and 2021, this paper comprehensively considers implicit guarantee willingness and guarantee ability. It further constructs a difference-in-differences (DID) model based on bailout expectations conveyed to the market by government debt talkfests to empirically test the impact and mechanism of implicit guarantees on municipal investment bond credit spreads. The study finds that credit spreads in the primary and secondary markets of municipal investment bonds are inverted and rigid redemption belief in local government financing vehicles (LGFVs) diverges following the government debt talkfests. The bailout willingness conveyed by the debt talkfests manifests as implicit guarantees in the primary market (i. e., bond credit spreads are narrowed), while it shows implicit concerns in the secondary market (i. e., bond credit spreads are widened). The above effects are heterogeneous in terms of the administrative level of LGFVs and regional credit environment. Analysis of the mechanism indicates that the implicit guarantee willingness affects the issuance pricing of municipal investment bonds by improving local governments’ underwriting and bargaining power, and its impact on the transaction pricing of municipal investment bonds depends on local governments’ ability to mobilise fiscal and financial resources. This paper suggests that local governments should avoid excessively releasing bailout signals to the market through government-bank-enterprise cooperation platforms, such as debt talkfests which may trigger market expectations divergence. China should gradually weaken implicit guarantees, break the rigid redemption belief in LGFVs and improve the market-oriented pricing mechanism of municipal investment bonds.
Key words：Key words: implicit guarantees, credit spreads, rigid redemption belief, debt talkfests
JEL codes：JEL codes：G12; H63; H74
The Spillover Effects of Stock Market Fluctuations on Private Lending Risk: Evidence from Court Judgments
Chen Minhao; Wang Jianxiong; Gao Haoyu
Abstract：Abstract: The unregulated nature of the private lending sector in China poses a significant risk to the financial system. Using around 2.7 million court judgments, this paper constructs a measurement indicator to assess the credit risk of private lending and empirically tests the spillover effects of stock market fluctuations on such risk. The findings reveal that: (1) stock market returns exert a significant impact on the default risk of private lending; (2) investors’ “cognitive biases” and “risk preferences” are the main economic mechanisms at play; (3) in periods of rising stock market returns, cities that pay more attention to the stock market experience a surge in high-risk private lending financing activities; and (4) the availability of formal financial services can significantly alleviate the impact of stock market returns on the private lending default risk. This study offers a new perspective on private lending risk, sheds light on cross-market spillovers of financial risks and provides valuable insights for policymakers to effectively prevent and resolve systemic financial risks.
Key words：Key words: private lending risk, stock market risk, risk spillover
JEL codes：JEL codes：G51; G10; G41
Low-Carbon Transport Construction in China: A Carbon Reduction Practice Based on a Holistic Governance Framework
Yao Hongjiang; Wang Kunlun
Abstract：Abstract: The low-carbon transformation of the transport sector is important to reduce carbon emissions and achieve carbon peak and neutrality. This study focuses on a holistic transport governance policy - low-carbon transport construction - which accounts for both supply-side and demand-side factors. Using this pilot policy as a quasi-experiment, this study investigates the causal relationship between low-carbon transport construction and carbon emissions. The empirical analyses indicate that the pilot policy leads to a 1.9% reduction in carbon emissions, equivalent to an annual reduction of approximately 367, 000 tons of standard coal. The mechanism analyses show that pathways to reducing emissions include a cleaner energy structure in the transport sector and the alternative role of public transport in private travel. The findings emphasize that the supply of low-carbon transport modes and a holistic consideration of the relationships between different transport modes greatly contribute to realizing the carbon reduction potential of the transport sector. This study concludes that future low-carbon transport policies should consider the synergy of supply-side and demand-side factors and should be designed and implemented based on a holistic governance framework.
Key words：Key words: low-carbon transport construction, carbon emissions, clean energy
JEL codes：JEL codes：Q54; R48; Q40
The Synergistic Effects of CO2 Reduction and Growth of the Clean Development Mechanism
Wan Panbing; Yang Mian; Wang Yiyi
Abstract：Abstract: This paper comprehensively assesses the synergistic effects of the clean development mechanism (CDM) in promoting “CO2 reduction” and “growth” based on panel data from 1,246 counties in China from between 2001 and 2015. The paper finds that the introduction of CDM projects has boosted the local economic development. Although CDM projects have not reduced overall regional carbon emissions, they have significantly reduced carbon emissions from high polluting local firms and had a positive effect on slowing the overall growth rate of carbon emissions at the regional level. Analysis of the mechanism indicates that the carbon emissions reduction effect of CDM projects depends on the combined action of scale and substitution effects. On the one hand, the scale effect is relatively dominant in CDM projects in impoverished counties. Compared to non-impoverished counties, CDM projects significantly increase carbon emissions in impoverished counties and promote local economic development. On the other hand, the substitution effect is relatively dominant in CDM projects in polluted counties. CDM projects significantly reduce carbon emissions in polluted counties relative to non-polluted counties, but at the same time limit local economic development. These findings provide important policy implications for the optimal design of China’s market-based emission reduction instruments.
Key words：Key words: clean development mechanism (CDM), market-based emission reduction instruments, scale effect, substitution effect, carbon emissions
JEL codes：JEL codes：Q51; Q52; O19
Housing Price Control and Industrial Pollution: Evidence from Rectifying the Chaotic Real Estate Market in China
Wen Qiang; Fang Ying
Abstract：Abstract: In recent years, the central government has been resolutely regulating the real estate market, which has changed the expectations of economic agents regarding the continued rise in housing prices. The way in which local governments have been responding to the cooling trend of the real estate market is worthy of in-depth study. Drawing on the quasi-experiment of the “Special Action to Control Chaos in the Real Estate Market” policy implemented from July to December 2018, this paper uses the difference-in-differences approach to identify the impact of housing price control policies on regional environmental pollution. Empirical results reveal that the policy implementation significantly reduces the level of housing prices in the pilot cities and increases the degree of industrial pollution in the pilot areas. A more detailed analysis indicates that to cope with the negative impact on land finance likely caused by housing price control, local governments relaxed environmental oversight to develop industries, which eventually led to an increase in industrial pollution. Nonetheless, the promotion of regional innovation can reduce the economic incentive of local governments to sacrifice environmental protection objectives, and the strengthening of external environmental regulation can reinforce the motivation of local governments to protect the environment, both of them will help curb the unintended polluting effects that housing price control may produce.
Key words：Key words: housing prices, industrial pollution, land finance, regional innovation, environmental regulation
JEL codes：JEL codes：R10; R50; Q28; Q53
Network Externality and Behavior-based Price Discrimination: An Economic Explanation of “Killing Familiarity”
Zhao Chuanyu; Ding Yuli; Liu Zhongquan
Abstract：Abstract: In the age of the digital economy, the role of network externality in consumers’ purchasing decisions has been steadily strengthening, and behavior-based price discrimination (BBPD) has also become easier to achieve. The combination of these two factors give rise to the “killing familiarity” phenomenon. This paper analyses the pricing strategies of oligopolistic competitive firms that adopt BBPD when consumers have network externality; it studies the pricing behavior of firms under three cases (no price discrimination, uncommitted BBPD and committed BBPD) and tests the theory with laboratory experiments. Theoretical analysis and experimental results show that: (i) in the presence of network externalities, when a firm can distinguish between new and old customer and discriminate against them, it practices “killing familiarity”, i.e., charges higher prices to old customers; (ii) BBPD strategies intensify price competition between firms and reduce their profits, and price commitment also intensifies competition between firms; and (iii) increasing network externality intensifies competition, which leads to a decrease in prices and a reduction in profits, thus reducing the price differential between new and old customers and alleviating the “killing familiarity” phenomenon.
Key words：Key words: network externality, platform economy, price discrimination, killing familiarity, economic experiment
JEL codes：JEL codes：C79; C91; L82; L86