Summary： How public infrastructure investments affect economic growth is an important topic for both academicians and practitioners. A large body of theoretical research has explored the mechanism through which public infrastructure investments affect firm production and thus economic growth. However, studies have typically used the representative agent optimization model and assumed that total factor productivity (TFP) is exogenous and constant, therefore neglecting an important theoretical issue—the effect of public infrastructure investments on TFP, which has widely been considered a key driving force of long-run economic growth. This issue is particularly important for many developing countries, as public infrastructure investments have become a prevalent policy instrument for facilitating economic growth in those countries.
This paper closes the current research gap by developing a general equilibrium model with heterogeneous entrepreneurs, financial frictions (collateral constraints and deposit-loan interest spreads), labor friction (overhead labor) and public infrastructure services as inputs to firm production. This public service entails congestion and is financed by a proportional income tax. The paper then quantitatively analyzes the effects of public infrastructure investments on TFP by calibrating the model to the Chinese economy from 1992 to 2014. The analysis shows that public infrastructure investments have an inverted-U effect on TFP, and that the size of public infrastructure investment that maximizes TFP is equal to the elasticity of public infrastructure investment with respect to aggregate output. Public infrastructure investments may affect the accumulation of entrepreneurs' wealth, including their self-financing practices, which can help entrepreneurs to overcome collateral constraints and thus reduce productivity losses by improving the allocation of production factors across firms.
Furthermore, this paper extensively analyzes the importance of several factors shaping the effects of public infrastructure investments. Specifically, collateral constraints are shown to have a significant role in shaping the effects of public infrastructure investments on TFP—public infrastructure investments tend to have a larger effect on TFP in an economy with tighter collateral constraints, while deposit-loan interest spreads have a relatively weaker effect. This paper also extends the model to incorporate public consumption expenditure that affects entrepreneurs' utility, and finds that a larger size of public consumption expenditure increases the effects (particularly the negative effects) of public infrastructure investments on TFP. An extended analysis shows that, compared with corporate income taxation, using consumption taxes to finance an increase in public infrastructure investment increases the positive effects of that investment on TFP. The results of these analyses are both theoretically relevant and practically meaningful; they substantially improve understanding of the effects of public infrastructure investments and provide important and useful guidance for designing better public infrastructure investment policies.
Key Words： Public Infrastructure Investment; Total Factor Productivity; Allocation of Factors; Financial Frictions; Heterogeneous Entrepreneurship Model

Summary： Since 1978, China's economy has developed rapidly due to the inspiring enthusiasm and creativity of laborers, the reform and opening-up policy, the release of institutional dividends, and especially the positive role the market mechanism has played in resource allocation. Historical experience has shown that the market mechanism functions to integrate and unify markets rather than scattering and isolating them. A unified domestic market can fully promote market competition, bring about economies of scale and normalize market rules, guaranteeing the free flow of limited resources to the most efficient sectors. Therefore, breaking up market segmentation and accelerating the establishment of a modern market system have become major practical problems in the development of China's market economy. In general, the tendency to unite the domestic market has been a gradual historical process. Market segmentation is not a special phenomenon that occurs during a period of economic transition. At the same time, diverse factors lead to domestic market segmentation and can generally be divided into natural, technical and institutional factors. Thus, we can break up domestic market segmentation in two effective ways. First, we can improve the efficiency of market transactions by increasing the capital investment in infrastructure construction such as transportation, information and communication to reduce natural and technical market segmentation. Second, the government can eliminate local protection and optimize the design of institutions to reduce institutional market segmentation. Thus far, the related research has mainly focused on institutional market segmentation, rather than natural and technical market segmentation. Therefore, empirical research on China's infrastructure construction and domestic market segmentation has a certain theoretical and practical significance.
This paper constructs an inter-period labor-division decision-making model to discuss the internal logic relationship between infrastructure construction and market segmentation. At the same time, based on new economic geography theory, this paper adopts the dynamic spatial panel Durbin model to empirically study the relationship between infrastructure construction and market segmentation based on Chinese provincial panel data from 1993 to 2012. The results show that the phenomenon of beggar-thy-neighbor has existed in China for a long time. On the material level, infrastructure construction can break up market segmentation, which provides theoretical support for the government to strengthen infrastructure construction. The effect of spatial spillover of infrastructure construction is insignificant as a whole and different in different stages. The strategic behavior of market segmentation is inconsistent across different areas and locations. Therefore, the government should strengthen infrastructure construction and narrow the gap between different areas. In the meantime, it should strengthen the interregional collaboration of investment subjects, and weaken the adverse effect of geographical boundaries on the market. In addition, the government should actively rebuild a modern service-oriented government, give full play to the policy guidance function, avoid too much intervention in market order and realize the decisive role that the market plays in resource allocation to establish a modern market system.
Key Words： Infrastructure Construction; Spatial Spillover; Market Segmentation; Spatial Panel Durbin Model

Summary： Over the past 20 years, China's infrastructure has developed at an extraordinary speed. This paper emphasizes the particularity of the structural change of China's land system and its important influence on the supernormal development of infrastructure in China. It develops an intuitive understanding based on explicit and implicit land support. This view helps to explain not only China's infrastructural development, but also the difference between China's infrastructural levels and those of other developing countries, such as India, Laos and Cambodia.
This paper uses qualitative and quantitative research methods to reach practical, theoretical and empirical conclusions. First, it points out the shortcomings of the literature on the causes of the supernormal development of infrastructure in China. Second, it describes the realistic performance and formation process of the land-supporting mode of supernormal infrastructure development in China. Third, it builds a theoretical model to examine the infrastructure supply of local officials in a politically centralized and economically decentralized economy. It concludes that local governments have a stronger financial capacity to provide more infrastructure under a public land-ownership regime than under a private land-ownership regime. Finally, this paper uses Chinese panel data to conduct fixed-effect, instrumental variable fixed-effect and feasible efficient generalized method of moment estimation tests, and uses panel data from Organisation for Economic Co-operation and Development countries to conduct a synthesis control methods test. The results verify the tenability of the land-support hypothesis of the supernormal development of infrastructure in China, as well as the overall effect of the structural change in China's land system before and after the 1990s on the supernormal development of China's infrastructure.
This paper concludes that the supernormal development of infrastructure in China has the characteristics of typical public ownership of land, and that the explicit and implicit support of land due to the change in land system is a fundamental cause of the supernormal development of infrastructure in China. This means that China's experience can be replicated directly in developing countries with public land ownership structures, while developing countries with private land ownership structures can mobilize initiatives and create land assets for local government. One of the most effective ways for local governments to enhance their power in allocating land resources, particularly those surrounding infrastructure projects, is to increase the proportion of public land.
This paper explains the supernormal development of China's infrastructure based on the institutional change in land system. It also incorporates land into an analysis of regional economic growth and establishes a dynamic theoretical model to analyze local officials' incentive to provide infrastructure to different land systems. In addition, this paper is significant to the study of the replication and promotion of China's infrastructure experience under “the Belt and Road Initiative” and provides a method for helping developing countries to eliminate infrastructure bottlenecks. The theoretical model can be further analyzed and improved to consider the relationships between land, infrastructure and regional economic growth. Thus, there remains a large amount of room for follow-up research.
Key Words： Infrastructure; Land; Land System; Political Economy of Growth

Summary： The intraregional gap between urban and rural public services cannot be ignored during the transition period of Chinese economic reform. The Chinese-style decentralization reform is rapidly increasing the gap, and fiscal transfer payments are viewed as important mechanisms for bridging it. This paper focuses on how fiscal transfer payments affect the gap and is committed to narrowing it.
The central government uses fiscal transfers to enhance local governments' fiscal capacity, change budget constraints, encourage local governments' investment in agricultural and country public service and narrow the urban-rural public service gap. However, fierce interregional competition leads rational local governments to invest more in urban areas where the cost of public services is low but the short-term return is high, so the central government's intention to narrow the urban-rural public service gap through fiscal transfer may fail. The catching-up regions can easily fall into a dilemma that converges to an urban-rural public service gap. It is impossible to predict whether fiscal transfers can narrow the gap. Therefore, it is of vital practical significance to determine the effect of fiscal transfers on the urban-rural public service gap based on analysis of groups of regions at different levels of economic catching-up.
Our main work includes: First, constructing and measuring the level of economic catch-up and the index of urban-rural public service gaps based on transportation infrastructure, health care services and social security services; Second, theoretically constructing the function of the reaction of local public expenditure decisions to fiscal transfers; Third, empirically testing how transfer payments affect the urban-rural public service gap and its sensitivity to different catch-up levels and different periods based on data collected for 26 provincial samples from 1996 to 2014.
We arrive at several findings. First, although the urban-rural public service gap has narrowed as a whole since 1996, both general and special transfer payments significantly inhibit the narrowing of the gap due to the rational bias of urban and rural expenditure under the Chinese-style decentralization system. Second, the higher the level of economic catching-up, the stronger the inhibition of the fiscal transfers used to narrow the gap. Third, the strategies and policies used to narrow the gap can hardly resist the drive of local economic catch-up due to policy weaknesses and soft system constraints. We reach two conclusions. First, the central strategic policy should be strengthened to narrow the urban-rural public service gap, particularly in the backward and catching-up regions. Second, the gap between the marginal economic and social welfare effects of urban-rural fiscal expenditure should be eliminated, particularly in the backward and catching-up regions.
This study contributes to the literature in the following ways. First, it breaks the exogenous budget constraint condition by systematically constructing the function of the reaction of local public expenditure decisions to fiscal transfers, sorting out the mechanism and conducting an empirical test. Second, it distinguishes different economic catch-up levels in its analysis, and institutionally resolves the rapid economic growth and urban-rural dilemma in backward and catching-up regions.
Key Words： Fiscal Transfer; Urban-rural Public Service Gap; Economic Catching-up

Summary： China is the second biggest economy and one of the fastest-growing economies in the world. This provides a dramatic background for economic research. Over the past three years, China's economy has shifted from rapid to moderate growth, and economists have attempted to explain the reasons and mechanisms behind this shift. China differs significantly from Western developed countries in the characteristics of its economic slowdown. An economic slowdown is always followed by a financial crisis and unemployment in developed countries, and structural reforms focus on domestic finance development, trade liberalization, current account liberalization and labor market reform. China's lower economic growth is characterized by overcapacity, which is reflected in the overstock and oversupply of products in 14 industries, particularly the steel, cement and glass industries. Faced with this economic slowdown, the Chinese government has engaged in supply-side structural reforms.
Why is supply-side structural reform the only way to address the slowdown, and how does China's reform differ from the structural reform in developed countries？ This paper provides an extended supply-demand model with two new assumptions, i.e., saturated demand and exit price, and proposes three different kinds of consumption choice conditions, i.e., classic conditions in microeconomics, constraint conditions for the exit price and constraint conditions for saturated demand. It applies the extended supply-demand model to analyze binary commodity market including both the common commodity market and the real estate market.
We find that Chinese overcapacity is caused by saturated demand in the commodity and real estate markets. This is a new problem that micro- and macroeconomics studies have not explained in depth. This paper arrives at the following findings. The commodity market is constrained by a “saturated demand trap” that hinders the shift from investment to consumption. Funds are transferred to the real estate market and become stuck in the “investment preference trap”, which leads to “the bad driving out the good” in the binary market and makes commodity market regulation ineffective. Therefore, real estate market regulation becomes a more important part of macroeconomic regulation as a whole.
The most efficient solution is to combine China's characteristics, conditions and recent practices. Looking at the “saturated demand trap” in the common commodity market, we identify what must be supplied. For the “investment preference trap” in the real estate market, we identify who must be supplied and focus the supply-side structural reform on the structural adjustment of supply directions and targets. Three shifts must take place when making supply-side structure reform policies in China. First, the single segmented regulation must be transformed into a binary interrelated regulation. Second, the commodity market must shift from skill- to cognition-biased regulation. Third, the real estate market must shift from price- to attribute-based management. Furthermore, developed countries must focus on reforms that optimize finance, trade, the labor market and so on. However, China emphasizes the balance of the binary market in its supply-side structural adjustment.
Key Words： Chinese Overcapacity; Supply-side Structural Reform; Exit Price; Saturated Demand

Summary： The tax system of value added tax (VAT) for manufacture and business tax for services is not conducive to industrial division. It also faces the serious problem of double taxation during production and sale, and is harmful to cross-regional cooperation under the located management of a business tax system. China has aimed to transform business tax into VAT (VAT reform) since January 1, 2012 to fundamentally remedy the situation. It is of great and practical importance to avoid double taxation, deepen the social division of labor and ultimately promote economic growth.
Although VAT reform should have a significant effect on tax cuts on average, it may cause heterogeneity in different firms or even result in completely opposite outcomes. However, the ultimate objective of VAT reform is to not only cut firms' tax, but also promote firms' industrial division, industrial upgrading and restructuring by influencing them to specialize their main line of business and separate out their intermediate inputs into other firms. Furthermore, the effect of VAT reform on firms' industrial division depends on the input-output connections with upward industries and the VAT system of upstream industry.
Using input-output table data of 135 industries in China, this paper calculates the industrial link between services and upstream industries and matches it with the micro-level data of listed corporations from 2009 to 2014. It then takes the pilot reforms in different industries and areas as natural experiments, and estimates the effects of VAT reform on firms' tax reduction and industrial division using difference-in-difference-in-differences (DDD) identification. We select service firms without pilots as the control group and exclude the manufacturing industry, as the former are not affected by VAT reform. We find that only firms with a certain industrial link experience the effects of tax cuts and division, and that the effects are positively correlated with the industrial link. Second, the results reveal that step-by-step reform by regions and industry has weakened the effect of the division. Third, we conclude that VAT reform can effectively promote cross-regional cooperation, as service sector firms can deduct the tax on intermediate inputs. Fourth, we conclude that VAT reform can boost the growth of equipment investment and further promote the development of technology. Lastly, we prove the robustness of our conclusions by examining some assumptions, adjusting the treatment group and choosing other measurements of firms' tax cuts and industrial division.
This paper extends the current literature from an industrial link perspective. We accurately estimate the effects of VAT reform by solving the problem of endogeneity based on DDD identification. More importantly, the results have implications for the policies associated with VAT reform, such as tax rate policy.
Key Words： Business Tax Replaced with VAT Reform; Industrial Linkage; Tax Cuts; Industrial Division

Summary： Some scholars and policymakers believe that “de-industrialization,” as advocated by European and American countries before the international financial crisis in 2008, drove the economy to become increasingly dependent on the virtual economy, represented by the financial industry, and was a significant cause of the crisis. Was “de-industrialization” the root cause of the financial crisis？ Can current “re-industrialization” reduce the probability of a financial crisis occurring or effectively check the emergence of such a crisis？
In our paper, we collect panel data related to 160 countries from 1970 to 2011. Following Gourinchas & Obstfeld (2012) and considering data availability, we divide the financial crisis into currency, sovereign debt and local banking crises and adopt a panel logit financial crisis early warning model. After our estimations, we find that the higher the proportion of manufacturing in a country, the more likely currency and sovereign debt crises are to occur, a finding that remains significant after controlling for corresponding influencing factors and differentiating samples.
Using a two-country model embedded in vertical specialization, we find that under the vertical specialization production, countries that import more intermediate goods or export more final goods to other countries increase the ease with which external shocks are transferred into those countries, resulting in a greater decline in domestic production and a negative effect of the global economy on the country.
To validate the theoretical model, we conduct three empirical tests. In the first test, we use the dynamic latent factor model to separate the global, country-specific and heterogeneous factors that contribute to the fluctuations of the major economic variables (e.g., output, consumption and investment) in each country, and find that the greater the proportion that the manufacturing sector contributes to GDP, the greater the effect of global factors on its output, consumption and investment volatility. In the second test, we construct a synergetic index and adopt the panel data model with the indexes calculated between each country and the volatility of the global economy. We find that the more developed a country's manufacturing industry, the stronger the co-movement of the country and the world business cycle, and the greater the effect of fluctuations in the world economy. Finally, we select three indicators, including global risk, world interest rate and global liquidity, to measure a country's external risk. After controlling for other factors, we find that currency and sovereign debt crises are more easily affected by external factors.
Our paper shows that every country participating in the international manufacturing division to revitalize manufacturing is more prone to external influences and more vulnerable to external shocks, which lead to financial crises. Therefore, when countries seize the opportunity to participate in an international sector, they must pay close attention to the possible external risks.
Key Words： Proportion of Manufacturing in GDP; Vertical Specialization; Financial Crises

Summary： A large literature has shown that financial constraints matter for household consumption and savings. Meanwhile， numerous studies have also found that financial constraints on corporate investment are pervasive even in developed economies. As savings and investment constitute the supply and demand for the loanable funds market， financial development （hereafter FD） produces both demand-side and supply-side forces on the equilibrium savings rate. Financially constrained households tend to save as a precaution， so FD leads to a decreasing household savings rate. On the other hand， financially constrained firms cannot invest to their optimal level， so FD leads to an increasing firm investment and therefore an increasing savings rate in equilibrium. Consequently， the effect of FD on the savings rate is non-monotonic.Horioka & Terada-Hagiwara's （2012） empirical study using 12 Asian economies confirm this.
Our empirical analysis differs from Horioka & Terada-Hagiwara's（2012） study in three important aspects. First， we extend the sample beyond Asian economies，which have historically had high savings rates. Second， we employ dynamic instead of static panel regression and use various econometric setups and methods to examine the robustness of the statistical relationship.Third， we control the possible per-capita income channel of financial development. Our analysis confirms an inverted-U relationship between FD and the aggregate savings rates， after controlling for various factors. The existence of a uniform inverted-U relationship in a broader sample thus calls for a unified theory to explain the relationship.
We thus develop a dynamic general equilibrium model with financial constraints on both households and firms to explain the inverted-U relationship. The financial constraint on household side is modeled by an endogenous bottom limit of savings （equivalent to an upper limit on borrowings）. FD relaxes the financial constraint， and thus reduces the incentive to save. Firms in our model are subject to financial constraint due to the limited enforcement problem. FD relaxes financial constraints on firms and hence generates an incentive for firms to increase their investment and the aggregate savings rate. The overall effect on the aggregate savings rate will then depend on which side of the economy （the households or the firms） dominates.
Our model is able to generate an inverted-U relationship between FD and the aggregate savings rates. To see this， imagine an extreme case in which firms have to borrow if they want to invest but they cannot borrow at all. In this case， the total investment demand would be zero. Since at equilibrium total savings must be equal to total investment， the aggregate savings rate will always be zero regardless of the households' strong incentives to save.As the financial constraints in such an economy gradually relax with FD， the aggregate savings rate will initially go up as firms start investing heavily. Beyond a critical level， however， the downward trend in household savings will begin to dominate. Thus， further relaxation in financial constraints will reduce the aggregate savings rate.Through a simple quantitative exercise， we show that our model can explain the observed inverted-U relationship in real data.
Key Words： Financial Development; Aggregate Savings Rate;Financial Constraint；Inverted-U Shape

Summary： The 2008 global financial crisis revealed inherent vulnerabilities in the current international monetary system dominated by the U.S. dollar, which increased the demand for reforming the system. An important reform direction involves diversifying international currencies. In this context, the internationalization of the renminbi is attracting extensive attention with China's growing economic strength and international influence.
This paper aims to construct a composite index to measure the degree of currency internationalization through principle component analysis. Based on the functions of international currency, a series of indicators are chosen to construct the index. The research object includes the U.S. dollar, euro, pound, yen, Australian dollar, Canadian dollar, Swiss franc and renminbi. To reflect the currencies' real status in the international market and distinguish the effect of economic fundamentals and structural factors such as policy and system on currency internationalization, a total currency internationalization index (TCII) is constructed and decomposed into two additional indexes: an absolute currency internationalization index (ACII) and a relative currency internationalization index (RCII), which respectively represent the absolute share of the global market determined by economic fundamentals and the relative share determined by structural factors.
Our data come from the International Monetary Fund, Bank for International Settlements, World Bank and other websites. The index results indicate that according to the TCII and RCII, the U.S. dollar and Euro have always occupied the most important positions in the world. The TCII of the renminbi has remained at low levels despite the currency's rise in recent years. The RCII of the renminbi is always negative, which reveals that the weakness in China's policy institution and financial system has hindered the process of internationalizing the currency. Although China's structural factors have improved in recent years, the magnitude and speed of this improvement is still far behind the growth of economic fundamentals. This paper also empirically analyzes the factors affecting currency internationalization through panel regression. The results show that economic fundamentals including the scale of economic, trade volume and currency stability are key factors in determining the TCII, while the RCII is mainly affected by capital account openness, financial market development, political stability and military power. Furthermore, this paper conducts a bootstrap Granger causality test to examine the relationship between the indexes and their influence factors and finds that China's economic growth and huge trade volume have promoted the internationalization of the renminbi. However, the insufficient development of China's financial market has restricted this process. Therefore, the key to promoting the internationalization of the renminbi at this stage is to improve China's structural conditions, such as those of its institutional system and financial market.
Previous research has typically selected only one or several functions of international currency and measured the degrees of currency internationalization separately. This paper accounts for the three functions together and constructs a more comprehensive index. This provides a practical quantitative index for academic research on the internationalization of the renminbi. Moreover, this paper divides the essential conditions of currency internationalization into economic fundamentals and structural factors and then constructs different indexes. By comparing these indexes, we can clearly distinguish the contribution of different factors to currency internationalization and determine the key factors that promote or hinder the renminbi internationalization process, thus providing a theoretical basis that ensures the smoothness of that process.
Key Words： Renminbi Internationalization; Index Construction; Determinants; Principle Component Analysis

Summary： Microfinance refers to financial services for poor or low-income people, unemployed or laid-off workers, people with disabilities and micro and small enterprises. These social entities are typically characterized by low access to credit due to a lack of collateral to establish their creditworthiness, which leads them to pay relatively high costs on microfinance loans. Improvement of these entities' access to microfinance services is further limited by technology, available funds and human resources. As a result, how to promote the commercial sustainability of microfinance without overreliance on government subsidies remains an unsolved issue in social science research.
Existing research has largely focused on using the characteristics of microfinance activities to construct relevant social performance and sustainability indicators and then empirically analyzing the factors that may affect the performance of microfinance institutions. Very little or no work has examined the performance and sustainability of microfinance through social network analysis.
Our paper is one of the first to apply social network analysis to studies of microfinance development. Building on a set of nine indicators grouped under network structure, network type and relationship attributes, we create an innovative measure of social networks for commercial banks. We then secure primary data through 316 questionnaires obtained from the various subsidiaries of a major commercial bank in Guangzhou, China. Using principal component and multiple regression analyses, we seek answers on whether and the extent to which social networks affect the social performance and sustainability of microfinance development. We arrive at six findings. First, social networks affect the depth, breadth and level of microfinance development. Second, among the three classes of indicators for social networks, network type has the largest effect on the sustainability and social performance of microfinance development, relationship attributes have the second largest effect and network structure has no significant economic effect. Third, network type is positively related to the level and breadth but negatively related to the depth of microfinance development, indicating that different types of social relationships in a network help to improve the sustainability of microfinance activities and the participation of low-income cohorts in financial services. Fourth, relationship attributes are positively related to the depth but have no effect on the level and breadth, of microfinance development, indicating that the duration and quality of relationships help to enhance the availability of microfinance credit. Fifth, among the three measures of relationship type, friendship and support networks are positively related to the number of microfinance loans, and a commercial network is negatively related to the amount of microfinance loans per person and positively related to the income from microfinance loans. Sixth, relationship attributes help to increase per capita microfinance loans, further enhancing the level of microfinance development.
Overall, our results indicate that by actively expanding social network resources and establishing mutually beneficial long-term trust with all stakeholders, financial institutions can continue to provide innovative products to support microfinance development, improve the sustainability of inclusive financial systems and enhance the allocative efficiency of the whole society.
Key Words： Social Networks; Microfinance; Inclusive Financial System; Microcredit Loans; Commercial Banks

Summary： Much research has focused on the economic influence of politicians. Many studies have demonstrated that politicians affect not only macro-economic growth (Jones and Olken, 2005; Besley et al., 2011), but also micro corporate behavior (Julio and Yook, 2012; Luo et al., 2016). However, current research has investigated only the macro or micro level individually, breaking the link between the two. There is no intermediate-level perspective that looks at how to transmit the effect of micro-level corporate behavior to macro-level economic growth. Corporate investment is associated with cash flow, the key factor promoting economic growth. Thus, cash flow is the appropriate intermediate variable linking the micro and macro levels. This paper explores the relationship between local officials and cash flow, facilitating the establishment of a more complete theoretical framework.
Local officials in China provide an ideal setting for this exploration. On the one hand, local officials are able to directly intervene in regional cash flow under the regionally decentralized authoritarian regime (Xu, 2011). On the other hand, the promotion tournament based on the relative economic growth of local officials makes them compete for growth (Li and Zhou, 2005). Economic growth relies mainly on a large amount of investment, and officials have great incentive to introduce an inflow of funds. When officials begin serving a new place, they are motivated to introduce funds from their politically connected regions, including their birthplaces, the places at which they have worked the longest and their source places, as they are familiar with corporations in these regions and are connected to corporations that should be compensated for their previous support. Furthermore, corporations in connected regions are willing to invest in following officials, as doing so can help them to obtain high-quality investment projects through the official. Thus, the comprehensive effect of the relationship between officials and corporations leads to the phenomenon of money following politicians.
We empirically investigate the role of local officials for interregional cash flows using the matching data of the high-value payment system of the People's Bank of China and the individual characteristics of the provincial party secretary. The payment system contains all of the bilateral high-value funds of the provinces, which can be used to accurately measure interregional cash flow in China. We examine whether the cash flows of officials' politically connected regions, including their birthplaces, the places at which they have worked the longest and their source places, follow the officials. We also investigate the effect of the heterogeneity of officials. The results indicate that compared with non-working years, the cash flows from an official's birthplace and source place are more accessible than those from the official's workplace during the tenure of a provincial party secretary, which proves the phenomenon of money following politicians. However, the cash flows from the place at which the official has worked the longest do not significantly increase. The greater the intensity of the politically connected region, the larger the effect of the money following politicians. Research has shown that, based on a balance of emotion and reason, the effects of term, age and source differ depending on the heterogeneity of the officials considered. Overall, the results imply that the relationship between local officials and cash flows may be a result of the balance of officials' emotion and reason.
The conclusions of this paper provide a new perspective on improving local officials' governance and deepening the reform of regional coordinated development in China. According to the results, when appointing local officials, the central government should consider the situations of their politically connected and serving regions and match the appropriate tenure, age and source to take advantage of the effect of money following politicians and achieve a reasonable flow of cash between regions.
Key Words： Local Officials; Politically Connected Areas; Cash Flows; High-value Payment System

Summary： In recent years, personality psychology has been integrated into economics, and a large number of papers have discussed the effects of workers' personality traits on their wages, skills, performance and even health-related behavior. However, almost all of these papers have been based on empirical evidence from developed economies. The reason is a lack of large survey samples that include information about workers' personality traits, behavior and outcomes in the labor market in most developing countries, especially China. Moreover, although a few papers have researched the statistical correlation between workers' personality traits and wages, we believe that this paper is the first to conduct empirical analyses of the causal effects of personality traits on workers' compensation in the Chinese labor market. Due to the lack of high-quality matched employer-employee survey data, it has been very difficult for research on the effects of workers' personality traits on behavior to effectively solve the endogeneity problem, such as selectivity bias and omitted variable bias resulting from the unobserved characteristics of essential firms and workers.
Therefore, based on matched employer-employee survey data from the China Employer-Employee Survey (CEES), this paper adopts an appropriate identification strategy to calculate the causal effects of workers' personality traits on their wages. The Institute of Quality Development Strategy (IQDS) at Wuhan University surveyed over 1,000 firms and almost 10,000 workers using a strictly random sampling procedure. Using the CEES data, this paper effectively calculates workers' personality traits, such as conscientiousness, openness, extraversion, neuroticism and agreeableness, with the international standard BFI-44 questionnaires. Moreover, it adds more variables to the workers' wage equation, including not only the control variables in the Mincer equation but also other worker characteristics such as cognitive skills and skills training and firm characteristics such as ownership, social insurance coverage, labor union governance, external supervision and market competition. Thus, this paper solves the omitted variable bias more effectively than other research. Furthermore, to solve the selectivity bias, this paper adopts the treatment effect model to make causal inferences about the effects of workers' personality traits on wages.
The main findings are as follows. First, in the benchmark regression with ordinary least squares estimation, positive personality traits such as openness and conscientiousness, play a significant role in promoting workers' wages. Second, in contrast to other papers based on empirical analyses from developed countries, this paper finds that an innovative personality represented by openness contributes to labor wages in the Chinese labor market, and that the partial effect of openness is more robust. Third, using openness as an example, this paper adopts the treatment effect model to study the causal effects of innovative personality traits on wages. The estimation results show that the average treatment effects of openness on wages are significant at the 5% level at least. Finally, when adventurous spirit and risk preference are used as alternative proxy variables, the causal effects of the personality trait of innovation on labor wages are robustly significant.
Key Words： Big Five Personality; Wages; Openness; Treatment Effect

Summary： The reduction of complex labor has been an unsolved problem in Marxian economics. This paper critically investigates three theories on the reduction of complex labor, especially those of Hilferding and his followers. As Hilferding argues, the educational and training labor expended in producing skills can be considered a value of fixed capital and transferred into the value of products when skilled labor is used to enhance productivity. Notwithstanding its pervasive influence, this point of view has been repeatedly criticized throughout the history of Marxist economic thought because it runs the risk of blurring the basic stance of the labor theory of value. In recognizing the shortcomings of Hilferding's theory, this paper draws on his idea that educational and training labor indeed exerts an effect on the value creation process. It thus attempts to reinterpret the relationship between educational and training labor and the labor expended in the production of products. Our fundamental hypothesis is that education and training can be regarded as one of two sequentially successive phases in a continuous and unified labor process, with the labor process normally defined as its second phase. We further argue that the theories of Hilferding and Russian economist Rubin must be combined to explain the reduction in complex labor, which can be achieved by taking both value creation and its realization into account simultaneously, corresponding to Marx's two conceptions of socially necessary labor.
Based on the aforementioned theoretical analysis, we evaluate the mathematic model of Japanese economist Okishio, who followed Hilferding and other pioneers in designing an equation system that included equations of commodity production as well as an equation of skill production. Okishio's shortcomings are obvious. First, he duplicates Hilferding's controversial view that educational and training labor is transferred into the value of products. Second, he overlooks Rubin's viewpoint that the conversion of complex labor occurs in not only production but also exchange. This paper constructs a new model that combines the production of skill and products into one equation, as both are successive phases of one unified and enlarged labor process. As a result, educational and training labor creates a part of the value materialized in products besides those expended in the direct labor process. The conversion coefficient of complex labor can be solved in a system composed of two equations by introducing an equation denoting exchange. The determination of the value of advanced labor power is partly ex post in character, as it is fixed in the aftermath of the value creation and realization process. Furthermore, this paper explains why complex labor and simple average labor have different ratios of exploitation. Finally, a preliminary empiric method is determined that can be applied to recognize the conditions for the reduction of complex labor in relevant sectors.
Key Words： Complex Labor; Second Meaning of Socially Necessary Labor Time; MELT