Abstract：By exploring the limitation of neoclassical theory of growth that treats economic growth as a homogenous process, this paper reconciles various theories of economic development and explains the rises and falls of economic growth under a unified framework focusing on incentives on physical and human capitals accumulation. The paper categorizes four types/stages of economic growth—that is, Malthusian poverty gap, Lewisian dual economy development, the Lewis turning point, and Solowian neoclassical growth. In relation to China’s position of those growth stages, the paper discusses some of the important propositions and their policy implications, which are relevant to the past, present and future of Chin‘s economic growth.
Key Words：Isoquant；Economic Growth Type；Great Divergence；Middle-income Trap

Abstract：We study economic fluctuation and business cycles from the perspective of stabilizing and destabilizing mechanism. While recognizing the existence of price adjustment as a stabilizing mechanism, whether there exist other mechanisms to destabilize the economy? We find that as earlier as in 1939, Harrod had already proved the existence of destabilization mechanism—the firm‘s investment adjustment—by showing the knife-edge problem. For this, we construct a macro-dynamic model with investment and price as core macroeconomic variables: the investment function introduced in this model is derived from the investment optimization model constructed in Gong & Li (2007); a dynamic optimization model is also constructed to derive the price function by following the sticky pricing of new Keynesian. Analysis shows that the interaction between stabilizing mechanism (price adjustment) and destabilizing mechanism (investment adjustment) generates fluctuation and business cycles for the economy. Yet, due to the sticky adjustment, the price adjustment as a stabilization mechanism may not be sufficient for the economy to be stabilized. In this case, the stabilization from government policy may become necessary.
Key Words：Stabilizing and Destabilizing Mechanism; Business Cycles; Non-linear Macro-dynamic Model; Sticky Pricing

Abstract：This article builds a multi-sector New Keynesian model to describe heterogeneous characters in food sector, including lower price stickiness, smaller price elasticity of demand, and stronger supply shock, and then studies how monetary policy should deal with the rapid rise of food price in China. Our studies show that, (1) lower price stickiness and smaller price elasticity of demand are main reasons leading to rapid rise of food price; (2) the optimal core inflation measurement is the one calculated by the weighted-average formula in which weights are chosen according to the influence of sectoral inflation on the welfare loss, and monetary policy targeting this core inflation measurement can reduce the welfare loss induced by exogenous shocks; (3) the weight of food price in this optimal core inflation measurement is 88%, which implies that, we should not overreact to rapid rise of food price because of its higher expenditure share and not underreact because of its higher volatility.
Key Words：Food Price; Core Inflation; Welfare Loss; Monetary Policy

Abstract：The paper empirically analyzes the liquidity characteristics of asset price boom-busts, the implicit information of asset prices, the macro-control effect of various monetary instruments on asset prices during the period 1998—2011 in China. The results indicate that liquidity plays an important role in asset price cycles, the movements of housing price and stock price contain specific information of future output and inflation, the monetary policy actually responds to asset prices by some degree, monetary regulation and credit control could effectively restrain stock price and housing price respectively, and credit control outperforms other instruments in sustaining macroeconomic stability and curbing asset prices simultaneously. Therefore, Chinese monetary policy should intervene in asset prices when in need, even targeting housing price as conditions permit. Besides, monetary regulation and credit control should be used to restrain stock price and housing price separately. However, it is necessary to coordinate the implementation of various monetary policy tools.
Key Words：Liquidity; Implicit Information of Asset Prices; Monetary Policy Choice

Abstract：Reducing principal-agent problem is an important research question in corporate finance. Prior studies have shown that designing proper CEO incentive contracts and increasing CEO pay-performance sensitivity (PPS) will help mitigate principalagent problem. This article provides a new perspective based on market microstructure theory and evidence. Using data from publicly listed firms in China, this paper finds that stock liquidity increases PPS and that the information content of stock prices plays a key role in determining this relationship. In addition, the effect of liquidity on PPS is weaker among stateown firms. Further analysis indicates that the PPS induced by stock liquidity significantly reduces agency cost. The findings of this paper imply that to design proper market-based CEO incentives, firms can work on enhancing their stock liquidity. If shares become more liquid, investors will be willing to spend time and resources to gather firm-specific information, which leads to increases in the information content of share prices. As a result, firms can provide high-power CEO incentives by increasing the weight of stock options in CEO compensation, thus delegate the monitoring of CEO performance to investors in the market and lower agency cost.
Key Words：Stock Liquidity; CEO Incentives; Information Content of Share Prices; Agency Cost; Market Microstructure

Abstract：Can political connections improve the long-term performance of the firms after public listing? Fan et al. (2007) find that political connections bring about the negative returns in the long run in China, but it is inconsistent with the arguments of Yu et al. (2012). Based on the literature of political connections, we suggest the theoretical framework of social burdens, property protections and government partialities for the relationship between political connections and corporate performance. With the panel data of the Chinese public listed firms, we find that political connections can improve corporate performance in the long run, which comes from the firms controlled by families instead of government-controlled firms. We further find that political connections of the family-controlled firms result in not only property protections, but also better access to bank loans, tax rebates, and government subsidies. We argue that government patronage associated with political connections gets the market twisted.
Key Words：Political Connection; IPO; Long Term Performance; Social Burdens; Investor Protection; Government Patronage

Abstract：Does demographic structure affect trade? On the one hand, a high working-age ratio in the exporting country can generate more output and hence lead to more export. On the other hand, a high working-age ratio in the importing country implies higher labor income and hence leads to more import. In this paper, we analyze the effect of demographic structure on trade by augmenting the gravity equation with the workingage ratio. Using a large panel dataset of 176 countries for the period 1970—2006 and controlling for multilateral resistance, we find empirical evidence consistent with our theoretical predictions. A 1% increase in exporter (importer)s workingage ratio leads to an at least 3% (2%) increase in its exports (imports). Such findings are also helpful to understand the trade growth for countries with a large number of populations such as China and India and for countries with a huge amount of foreign trade such as China and the U.S.
Key Words：International Trade; Working-age Ratio; Gravity Equation

Abstract：Based on the macro facts that the co-movements of the tightened borrowing constraints on medium-small private firms, the declining trend of labor’s share and consumption rate in national income, this paper sets up and calibrates a dynamic general equilibrium model consisting of state-owned firms and medium-small private firms, which face borrowing constraints and investment distortion to explore the above phenomenon. This paper sheds light on the following macro story: since the mid—1990s, the change of China’s financial environment tightened borrowing constraints on firms. To alleviate the persistent and rising difficulty to obtain financing, the medium-small private firms have sought to self insure through retaining profits as internal savings, hence decrease the profits distribution to households and lower the labor‘s share. The dominance of state-owned bank structure of financial ownership not only has restrained the development of financial market, but also forms the financing constraints on private firms through the government guidance to bank lending. In the face of a declining household income share, rational consumers choose consumption in a manner that is consistent with a falling share of consumption in GDP, as evident in the data.
Key Words：Financing Constraints; Labor’s Share; Consumption; State-owned Financial Support

Abstract：Using two large survey data in 2005 and 2011, this paper finds a significant regional difference in the return to education for rural-to-urban migrants: the east and the rich cities have higher returns than the central and west regions. Between 2005 and 2011, the overall return to education of migrant workers declined, and the regional difference shows the characteristics of convergence to the mean. These results are robust when we control for the welfare condition and migration time, and after we correct for the sample selection bias. We also find that migration flows were responsive to the regional difference in the returns to education. Further reducing movement barriers will help sustain China‘s economic growth.
Key Words：Migrant Workers; Return to Education; Regional Difference

Abstract：This paper focuses on the local city government’s (local city is an administration level just below provincial level) behavior on the education input. We mainly explore whether or not the interaction exists on education expenditure among local governments within the same province. In theoretical part of this paper, we give a simple theoretical model of Chinese-Style yardstick competition “from the top” to explain why there may exist the interactions among local governments over the education expenditure. Based on this theoretical model, this paper further uses the education expenditure data of 312 local cities in China from 2007 to 2010 to construct a spatial panel data model. And we apply GS2SLS and MLE methods under the fixed-effects framework to estimate the parameter of the reaction equation for education expenditure. The empirical results are consistent with our theoretical prediction; that is, there actually exists a yardstick competition among local city level governments over the education expenditure. The interesting thing is that interaction among the neighbors defined by similar economic background is more significant than that among the geographical neighbors. In addition, we find that, for the local city level governments, the more of fiscal decentralization (measured by fiscal autonomy index), the less of incentive for more input in public education.
Key Words：Local Municipal Governments; Education Expenditure; Yardstick Competition; Spatial Panel Data Model

Abstract：Cooperation between genetically unrelated individuals in large groups constitutes the main feature of human society. So we want to know how social order is possible. Or, which kind of the unique features of human can lead to cooperation between strangers in large groups? This problem attracts almost all the researchers in social sciences. However, there are still many mysteries about this issue. Maybe only relying on a single discipline is very difficult to answer the question. So we try to explore this basic problem of social science in an inter-disciplinary perspective in this paper.
Key Words：Social Order; Cooperation; First-order Free Rider; Second-order Free Rider; Neuroeconomics