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Greater China and the World Economy: Introduction to the Second Symposium
Journal of Comparative Economics 30, 505–506 (2002) doi:10.1006/jcec.2002.1790
Greater China and the World Economy: Introduction to the Second Symposium Kar-yiu Wong University of Washington, Seattle, Washington 98195 E-mail: [email protected] Received April 29, 2002
This is the second symposium published in this journal containing articles presented at a conference entitled “Greater China and the World Economy” and held at City University of Hong Kong in the summer of 2000; see the June 2001 issue of this journal for the first group of articles. The present symposium contains five articles that analyze the economic relations of three Chinese economies, i.e., Mainland China, Taiwan, and Hong Kong, with each other and with the rest of the world. At the time of the conference, Taiwan and Hong Kong were newly industrialized economies (NIEs), China had emerged as an influential player in the global economy, and the three Chinese economies were becoming more integrated. After the conference, China and Taiwan were admitted to the World Trade Organization (WTO), signifying both governments’ commitment to integrating further with the rest of the world. Even though these five articles were written before the WTO accession by these two economies, their analyses and results remain relevant for economists and policymakers in the new environment. The first article compares the determinants of economic growth in Taiwan over the past four decades with those in Mainland China beginning in the late 1970s, when the latter economy opened up to foreign trade and foreign investment. Using a Cobb–Douglas production function for each economy, Chow and Lin estimate the contributions of capital (both physical and human), labor, and total factor productivity (TFP) to the growth of these two economies. The authors find that the capital variable is the most important factor in explaining growth in both economies and that it has a larger effect in China than in Taiwan while the opposite ranking applies to TFP. Their results identify an important role played by foreign direct investment in supplying both physical capital and advanced technology to China in recent years. 0147-5967/02 $35.00
505
C
2002 Association for Comparative Economic Studies Published by Elsevier Science (USA) All rights reserved.
506
KAR-YIU WONG
In the second article, Wang and Schuh use a computable general equilibrium model to analyze the effects of economic integration among the three Chinese economies, combined to constitute the Chinese Economic Area (CEA). These authors estimate that each country could achieve significant welfare gains, ranging from 2.3 to 8% of 1997 GDP, from further integration and trade liberalization. By considering the effects of lowering the CEA’s external tariff rate with different external partners, the authors show the importance of U.S. trade with the CEA for both the countries in the region and for the United States. They argue that an economically integrated CEA is in the long run strategic interest of the United States. The next two articles address issues related to foreign direct investment (FDI) in China. Hong Kong, Taiwan, the United States, and Japan are the four most important sources of FDI in China, but investments from different sources have different characteristics that are crucial for domestic policymakers to understand in designing policies to attract, and make best use of, investment funds. Fung et al. estimate the determinants of U.S. and Japanese direct investment in China. The authors show that U.S. and Japanese investors are more sensitive to local market conditions, while Hong Kong and Taiwanese investors depend more on infrastructure development. They demonstrate that labor quality is a more important consideration to Japanese firms than it is to their U.S. counterparts when making decisions about investing in China. Using data on 29 manufacturing industries in Shenzhen’s Special Economic Zone, Liu finds significant technology spillover effects from FDI on productivity and its rate of growth. The authors shows that domestic sectors benefit significantly from the presence of foreign firms in the same industry and that the productivity of state and joint-owned firms is more responsive than that of other firms to FDI in their sectors. In the final article, Cheung and Yuen examine the effects of U.S. inflation on inflation in Hong Kong and Singapore, two small open economies with minimal government intervention in markets. Although similar in many economic respects, Hong Kong maintains a fixed exchange rate while Singapore pursues a more flexible exchange rate regime. By comparing the effects of U.S. inflation on these two economies, the authors investigate how the choice on an exchange rate regime may insulate a small open economy from external inflationary pressures. They find that inflation in Hong Kong is more responsive to U.S. inflation but that U.S. inflation does have some impact on price changes in Singapore, probably because the float is not a clean one. Based on this evidence, the authors conjecture that if the government of a small open economy prefers a more stable price level, a flexible exchange rate regime may be more effective than a fixed exchange rate in achieving this goal.
Greater China and the World Economy: Introduction to the Second Symposium Kar-yiu Wong University of Washington, Seattle, Washington 98195 E-mail: [email protected] Received April 29, 2002
This is the second symposium published in this journal containing articles presented at a conference entitled “Greater China and the World Economy” and held at City University of Hong Kong in the summer of 2000; see the June 2001 issue of this journal for the first group of articles. The present symposium contains five articles that analyze the economic relations of three Chinese economies, i.e., Mainland China, Taiwan, and Hong Kong, with each other and with the rest of the world. At the time of the conference, Taiwan and Hong Kong were newly industrialized economies (NIEs), China had emerged as an influential player in the global economy, and the three Chinese economies were becoming more integrated. After the conference, China and Taiwan were admitted to the World Trade Organization (WTO), signifying both governments’ commitment to integrating further with the rest of the world. Even though these five articles were written before the WTO accession by these two economies, their analyses and results remain relevant for economists and policymakers in the new environment. The first article compares the determinants of economic growth in Taiwan over the past four decades with those in Mainland China beginning in the late 1970s, when the latter economy opened up to foreign trade and foreign investment. Using a Cobb–Douglas production function for each economy, Chow and Lin estimate the contributions of capital (both physical and human), labor, and total factor productivity (TFP) to the growth of these two economies. The authors find that the capital variable is the most important factor in explaining growth in both economies and that it has a larger effect in China than in Taiwan while the opposite ranking applies to TFP. Their results identify an important role played by foreign direct investment in supplying both physical capital and advanced technology to China in recent years. 0147-5967/02 $35.00
505
C
2002 Association for Comparative Economic Studies Published by Elsevier Science (USA) All rights reserved.
506
KAR-YIU WONG
In the second article, Wang and Schuh use a computable general equilibrium model to analyze the effects of economic integration among the three Chinese economies, combined to constitute the Chinese Economic Area (CEA). These authors estimate that each country could achieve significant welfare gains, ranging from 2.3 to 8% of 1997 GDP, from further integration and trade liberalization. By considering the effects of lowering the CEA’s external tariff rate with different external partners, the authors show the importance of U.S. trade with the CEA for both the countries in the region and for the United States. They argue that an economically integrated CEA is in the long run strategic interest of the United States. The next two articles address issues related to foreign direct investment (FDI) in China. Hong Kong, Taiwan, the United States, and Japan are the four most important sources of FDI in China, but investments from different sources have different characteristics that are crucial for domestic policymakers to understand in designing policies to attract, and make best use of, investment funds. Fung et al. estimate the determinants of U.S. and Japanese direct investment in China. The authors show that U.S. and Japanese investors are more sensitive to local market conditions, while Hong Kong and Taiwanese investors depend more on infrastructure development. They demonstrate that labor quality is a more important consideration to Japanese firms than it is to their U.S. counterparts when making decisions about investing in China. Using data on 29 manufacturing industries in Shenzhen’s Special Economic Zone, Liu finds significant technology spillover effects from FDI on productivity and its rate of growth. The authors shows that domestic sectors benefit significantly from the presence of foreign firms in the same industry and that the productivity of state and joint-owned firms is more responsive than that of other firms to FDI in their sectors. In the final article, Cheung and Yuen examine the effects of U.S. inflation on inflation in Hong Kong and Singapore, two small open economies with minimal government intervention in markets. Although similar in many economic respects, Hong Kong maintains a fixed exchange rate while Singapore pursues a more flexible exchange rate regime. By comparing the effects of U.S. inflation on these two economies, the authors investigate how the choice on an exchange rate regime may insulate a small open economy from external inflationary pressures. They find that inflation in Hong Kong is more responsive to U.S. inflation but that U.S. inflation does have some impact on price changes in Singapore, probably because the float is not a clean one. Based on this evidence, the authors conjecture that if the government of a small open economy prefers a more stable price level, a flexible exchange rate regime may be more effective than a fixed exchange rate in achieving this goal.