Background and upward-bias hypothesis revisited Chinaâ€TMs official GDP growth estimates have bee... more Background and upward-bias hypothesis revisited Chinaâ€TMs official GDP growth estimates have been criticized for being upward biased because of both methodological and institutional problems. Methodologically, the “comparable price system―, which was adopted together with the Soviet Material Product System (MPS) in the early 1950s, introduces segmented price weights with overlong intervals in growth indexing, hence inevitably underestimating price changes while exaggerating the real growth (Maddison, 2007). This problem can be well explained by the Gerschenkron effect (Gerschenkron, 1951), i.e., a comparison of two situations, weighted at the base-year prices, can be expected to be biased upwards because the price movements are inversely related to the quantity movements when the normal demand relationship is held. It is also known as the substitution bias. As for institutional deficiency, the output and price data are collected and processed through a long-established statisti...
Regional income dispersion is a sensitive issue in China in terms of judging the impact of econom... more Regional income dispersion is a sensitive issue in China in terms of judging the impact of economic reform. This study looks closely at the issue as to what are the determinants of income variation among households in general, and which are the key determinants of income dispersion among different regions. The study uses the data from a sample survey on 1000 rural households in five Chinese provinces. Household income equations are estimated to assess the determinants of income variations among China's rural households. Blinder's (1973) decomposition approach is used to determine whether the regional income differential is mostly due to regional endowment differential or regional premium. Among other interesting findings, the major determinant of regional income dispersion seems to be the degree of regional marketisation. Moreover, the rate of return to most factors is significantly different across regions. These findings suggest that further economic reform in less developed regions and the open up of interregional trade and factor mobility are the most important factors in reducing the regional income differential.
Expectations and beliefs are important forces that can influence financial markets. Using results... more Expectations and beliefs are important forces that can influence financial markets. Using results from a survey, this article examines the beliefs of currency traders in Hong Kong's financial institutions regarding the RMB and HK$/US$ pegs. In particular, it examines the attitudes of these currency traders towards the intervention by the Hong Kong Monetary Authority (HKMA) in Hong Kong's stock and futures markets to defend the HK$/US$ peg during the Asian crisis in 1998. Contrary to expectation, not all currency traders in Hong Kong were diehard devotees of the free market and more were in support of the intervention than against. Degree of identification with Hong Kong was found to be important, influencing attitudes towards government intervention. An inference from the survey is that the intervention was popular with Hong Kong residents and that future intervention by the HKMA is likely if faced with similar speculative attacks on the HK$.
Development policies and institutional arrangements in the former centrally-planned economies tha... more Development policies and institutional arrangements in the former centrally-planned economies that are undergoing market oriented transition have made important roles in shaping industrial structures in these economies. Using the shift share approach to decompose the intrabranch productivity and interbranch resource shift effects upon the aggregate labour productivity performance, this study examines the long-run effect of structural changes on the labour productivity growth and catch up with the world's productivity leader USA in the Chinese manufacturing. Its main findings show that the structural effect from the forced heavy industrialisation policy at the early stage of industrial development did make a positive contribution to the labour productivity growth, but it was not sustainable in the long run. Such a development was followed by a labour productivity stagnation. The "structural correction" effect are found following the market-oriented reform and the open door policy, which improved the labour productivity performance. Catch up in labour intensive industries are the main driving forces behind the labour productivity convergence with the USA.
Applying an aggregate production possibility frontier (APPF) framework for growth accounting à la... more Applying an aggregate production possibility frontier (APPF) framework for growth accounting à la Jorgenson et al. to economy-wide Chinese and Indian industry productivity accounts, constructed in the spirit of the KLEMS principle, we estimate and compare growth and productivity performance in China and India over their post-reform period from 1981 to 2011. We show that during this period China grew over 50 per cent-faster than India in value added (9.4 versus 6.1 per cent per annum) but about 25 per cent-slower than India in TFP (0.83 versus 1.13 per cent per annum). The two economies also experienced very different growth and productivity performances over sub-periods distinguished by special policy regimes and governing systems. While both countries appeared to enjoy their best performances in the 2002-2007 period following China's WTO entry, China faltered much more in terms of total factor productivity growth in the wake of the global financial crisis. Benef iting fr om the...
The Chinese statistical authorities have recently adjusted the Chinese GDP level and growth rate ... more The Chinese statistical authorities have recently adjusted the Chinese GDP level and growth rate for the period 1993-2004 following China’s first national economic census. However, their methodology used in the adjustment is opaque. Using a trend-deviation interpolation approach, this study has managed to replicate the basic procedures of the adjustment and reproduced the official estimates. Through this exercise, it has found that the estimates that could be obtained by the normal interpolation procedures were significantly and arbitrarily modified to satisfy certain needs. Based on some political economy argument, we attempt to explain why the adjustment had to leave the growth rate of 1998 intact and why it had to bypass the price issue and directly work on the real growth rate adjustment. Based on previous studies and other observations, we also challenge the census results on non-service industries.
In the past two decades, China has been the world’s fastest growing economy. In 1982, it overtook... more In the past two decades, China has been the world’s fastest growing economy. In 1982, it overtook Germany as the world’s third largest economy; in 1992, overtook Japan as the second biggest economy. In 2003 its GDP was about 73 per cent of that in the USA. It seems likely that it will overtake the USA, and become number one before 2020. The above estimates were made by converting China’s GDP and that of the other countries in their national currencies, using a PPP (purchasing power parity) converter, rather than the exchange rate. As the Chinese currency is greatly undervalued, the difference between PPP and exchange rate conversion is unusually large. With exchange rate conversion, Chinese GDP appears to have been only 15 per cent of that in the USA in 2003. Very frequently, there is significant error in assessing China’s comparative performance when such exchange rate comparisons are used. This happens in journalism, in political discourse and also amongst some economists who rega...
This study revisits the debate of the real industrial growth performance in China by tackling two... more This study revisits the debate of the real industrial growth performance in China by tackling two unsolved problems: substitution bias and effect of value added ratio change in Laspeyres quantity index. This new exercise is based on a substantially revised and updated time series of major industrial product quantities for the period 1949-2006. Price weights are used for product level aggregation. Benchmark year input-output table gross output and value added data are used for industry level index construction and inter-industry aggregation. To test for the Gerschenkron effect, three benchmark years 1987, 1992 and 1997 are used incorporated with full input-output tables for these years. Thus three sets of quantity output indices are constructed and compared. The results are a systematic and substantial improvement to the author’s earlier work (Wu, 2002, RIW). Our findings lend a strong support to the upward bias hypothesis about the Chinese official growth estimates. For the period 1...
Background and upward-bias hypothesis revisited Chinaâ€TMs official GDP growth estimates have bee... more Background and upward-bias hypothesis revisited Chinaâ€TMs official GDP growth estimates have been criticized for being upward biased because of both methodological and institutional problems. Methodologically, the “comparable price system―, which was adopted together with the Soviet Material Product System (MPS) in the early 1950s, introduces segmented price weights with overlong intervals in growth indexing, hence inevitably underestimating price changes while exaggerating the real growth (Maddison, 2007). This problem can be well explained by the Gerschenkron effect (Gerschenkron, 1951), i.e., a comparison of two situations, weighted at the base-year prices, can be expected to be biased upwards because the price movements are inversely related to the quantity movements when the normal demand relationship is held. It is also known as the substitution bias. As for institutional deficiency, the output and price data are collected and processed through a long-established statisti...
Regional income dispersion is a sensitive issue in China in terms of judging the impact of econom... more Regional income dispersion is a sensitive issue in China in terms of judging the impact of economic reform. This study looks closely at the issue as to what are the determinants of income variation among households in general, and which are the key determinants of income dispersion among different regions. The study uses the data from a sample survey on 1000 rural households in five Chinese provinces. Household income equations are estimated to assess the determinants of income variations among China's rural households. Blinder's (1973) decomposition approach is used to determine whether the regional income differential is mostly due to regional endowment differential or regional premium. Among other interesting findings, the major determinant of regional income dispersion seems to be the degree of regional marketisation. Moreover, the rate of return to most factors is significantly different across regions. These findings suggest that further economic reform in less developed regions and the open up of interregional trade and factor mobility are the most important factors in reducing the regional income differential.
Expectations and beliefs are important forces that can influence financial markets. Using results... more Expectations and beliefs are important forces that can influence financial markets. Using results from a survey, this article examines the beliefs of currency traders in Hong Kong's financial institutions regarding the RMB and HK$/US$ pegs. In particular, it examines the attitudes of these currency traders towards the intervention by the Hong Kong Monetary Authority (HKMA) in Hong Kong's stock and futures markets to defend the HK$/US$ peg during the Asian crisis in 1998. Contrary to expectation, not all currency traders in Hong Kong were diehard devotees of the free market and more were in support of the intervention than against. Degree of identification with Hong Kong was found to be important, influencing attitudes towards government intervention. An inference from the survey is that the intervention was popular with Hong Kong residents and that future intervention by the HKMA is likely if faced with similar speculative attacks on the HK$.
Development policies and institutional arrangements in the former centrally-planned economies tha... more Development policies and institutional arrangements in the former centrally-planned economies that are undergoing market oriented transition have made important roles in shaping industrial structures in these economies. Using the shift share approach to decompose the intrabranch productivity and interbranch resource shift effects upon the aggregate labour productivity performance, this study examines the long-run effect of structural changes on the labour productivity growth and catch up with the world's productivity leader USA in the Chinese manufacturing. Its main findings show that the structural effect from the forced heavy industrialisation policy at the early stage of industrial development did make a positive contribution to the labour productivity growth, but it was not sustainable in the long run. Such a development was followed by a labour productivity stagnation. The "structural correction" effect are found following the market-oriented reform and the open door policy, which improved the labour productivity performance. Catch up in labour intensive industries are the main driving forces behind the labour productivity convergence with the USA.
Applying an aggregate production possibility frontier (APPF) framework for growth accounting à la... more Applying an aggregate production possibility frontier (APPF) framework for growth accounting à la Jorgenson et al. to economy-wide Chinese and Indian industry productivity accounts, constructed in the spirit of the KLEMS principle, we estimate and compare growth and productivity performance in China and India over their post-reform period from 1981 to 2011. We show that during this period China grew over 50 per cent-faster than India in value added (9.4 versus 6.1 per cent per annum) but about 25 per cent-slower than India in TFP (0.83 versus 1.13 per cent per annum). The two economies also experienced very different growth and productivity performances over sub-periods distinguished by special policy regimes and governing systems. While both countries appeared to enjoy their best performances in the 2002-2007 period following China's WTO entry, China faltered much more in terms of total factor productivity growth in the wake of the global financial crisis. Benef iting fr om the...
The Chinese statistical authorities have recently adjusted the Chinese GDP level and growth rate ... more The Chinese statistical authorities have recently adjusted the Chinese GDP level and growth rate for the period 1993-2004 following China’s first national economic census. However, their methodology used in the adjustment is opaque. Using a trend-deviation interpolation approach, this study has managed to replicate the basic procedures of the adjustment and reproduced the official estimates. Through this exercise, it has found that the estimates that could be obtained by the normal interpolation procedures were significantly and arbitrarily modified to satisfy certain needs. Based on some political economy argument, we attempt to explain why the adjustment had to leave the growth rate of 1998 intact and why it had to bypass the price issue and directly work on the real growth rate adjustment. Based on previous studies and other observations, we also challenge the census results on non-service industries.
In the past two decades, China has been the world’s fastest growing economy. In 1982, it overtook... more In the past two decades, China has been the world’s fastest growing economy. In 1982, it overtook Germany as the world’s third largest economy; in 1992, overtook Japan as the second biggest economy. In 2003 its GDP was about 73 per cent of that in the USA. It seems likely that it will overtake the USA, and become number one before 2020. The above estimates were made by converting China’s GDP and that of the other countries in their national currencies, using a PPP (purchasing power parity) converter, rather than the exchange rate. As the Chinese currency is greatly undervalued, the difference between PPP and exchange rate conversion is unusually large. With exchange rate conversion, Chinese GDP appears to have been only 15 per cent of that in the USA in 2003. Very frequently, there is significant error in assessing China’s comparative performance when such exchange rate comparisons are used. This happens in journalism, in political discourse and also amongst some economists who rega...
This study revisits the debate of the real industrial growth performance in China by tackling two... more This study revisits the debate of the real industrial growth performance in China by tackling two unsolved problems: substitution bias and effect of value added ratio change in Laspeyres quantity index. This new exercise is based on a substantially revised and updated time series of major industrial product quantities for the period 1949-2006. Price weights are used for product level aggregation. Benchmark year input-output table gross output and value added data are used for industry level index construction and inter-industry aggregation. To test for the Gerschenkron effect, three benchmark years 1987, 1992 and 1997 are used incorporated with full input-output tables for these years. Thus three sets of quantity output indices are constructed and compared. The results are a systematic and substantial improvement to the author’s earlier work (Wu, 2002, RIW). Our findings lend a strong support to the upward bias hypothesis about the Chinese official growth estimates. For the period 1...
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Papers by Harry X Wu