Summary： The experience of developed economies shows that when the industrialization process enters its later stages, the proportion of industry in the economic structure will decline, and the entire economy will develop into a service-oriented model. The service industry share in OECD countries accounts for more than 70% of their economies on average. China has experienced rapid economic structural changes in recent years, and the model of economic development is undergoing changes. Since 2015, the proportion of value-added from China's service industry has exceeded 50%, the rate of urbanization has approached 60%, and the stage of rapid industrialization is coming to an end. A growth pattern dominated by urbanization and the service industry has taken shape.
At the root of this economic structural change is the change in strength of the links between various sectors of the economy and the relevance of the input-output network. Relying on the production of physical products, industry has a strong upstream and downstream industrial connection, and the resulting input-output network is highly correlated. In contrast, the service industry relies on human capital for the supply of personalized services, and there are no strong upstream and downstream links. Therefore, the process of changing to a service-oriented economy is the process of weakening industrial linkages in the economic structure.
Changes in structural conditions, failure of induced mechanisms, and efficiency compensation are issues that must be treated with caution in any developing country during an economic transition period. The failure of the induced mechanism in the period of large-scale industrialization will lead to a decline in efficiency improvement capability, which requires compensation in a service-based economy. Otherwise, the economy will fall into structural distortion and shock during the transformation process, hindering the achievement of high-quality development and sustainable urbanization.
This paper first uses the World Input-Output Tables (WIOD) and OECD input output data to calculate the industry-based forward-looking linkage, direct and complete consumption coefficients, and input-output multiplier — that is, all departments improve efficiency by 1% against the overall TFP. We then determine a number of characteristics such as a marked weakening of the input-output linkages in the process of changing to a service-based economy. We use counterfactual estimation and factor analysis to study the path of China's economic structural efficiency compensation by adding distortion variables to the general equilibrium model. We find that eliminating distortions in China's industry-wide factor allocation can increase output by 44%. Our basic conclusion is that in an open and competitive environment, China's manufacturing industry has self-correcting capabilities, which are basically not distorted. In contrast, the service industry, especially the financial industry, is highly distorted, and capital and labor factors are incorrectly formulated to develop China's economic efficiency. At this stage, it is difficult to provide efficiency compensation for service industry distortion and factor mismatch, both of which squeeze out the efficiency of the physical sector.
At present, the new conditions and forces reshaping China's path of growth are intertwined with the accumulated problems of the industrialization period, in addition to some essential problems from the transition period. In this regard, our basic understanding is that the structural deceleration of China and the new economic normal at this stage have occurred in the context of the gradual disappearance of large-scale industrialization incentives. The “extreme state” of the failure of the induced mechanism and the inefficient expansion of the service industry have strengthened structural distortion during the transition period and squeezed out the efficiency of the industrial sector. China needs innovative institutional mechanisms to eliminate the distortion of service industry development and factor allocation, stimulate the efficiency compensation potential of structural service and urbanization, and promote high-quality development.
Keywords： Failure of Inducing Mechanism; Technical Efficiency Multiplier; Factor Allocation Efficiency; Efficiency Compensation
JEL Classification： O40, O11, R15

Summary： Since the 18th National Congress of Communist Party of China (CPC), the CPC Central Committee has evaluated the “new normal” of China's economic development and made important strategic decisions for comprehensively deepening reforms, proposing to “enable the market to play a decisive role in resources allocation and the government to function better”. This pronouncement shows that fiscal reform is still the focus of comprehensively deepening reforms; the essence of such reform is the balance between the government and the market. How to reconcile “the decisive role of the market” and the ability of “the government to function better” is a fundamental question for public finance. The Decision of the CPC Central Committee on Several Important Issues of Comprehensively Deepening Reform clearly defines public finance as “the foundation and important pillar of state governance”. Does this declaration mark the new functional position of public finance in the current economic and social context? Or has the Chinese leadership always been keenly aware of this function, even though public finance theory has not been given due interpretation and expression? These questions require Chinese scholars to present deeper theoretical summaries and judgments on the role of public finance under new historical conditions.
A review of the development of contemporary fiscal theory shows that since the mid-1990s, Anglo-Saxon fiscal theory (based on market failure theory) has been the mainstream in the field of public finance in China. Anglo-Saxon fiscal theory bears the distinctive characteristics of fiscal policy science, and uses the economics paradigm as the primary method for research into and evaluation of fiscal policy. However, fiscal policy analysis is only one function of public finance; its main purpose is to reveal the laws of fiscal activities, describe and explain fiscal phenomena, assess the performance of fiscal activities, and predict their effect. The pragmatic nature and policy-oriented function of market failure theory thus undermines the development and explanatory power of public finance.
This paper starts by asking what kind of theoretical basis public finance needs, and offers a thorough review of development of market failure theory. It finds that the shortcoming of Anglo-Saxon fiscal theory lies in the vulnerability and insularity of its theoretical foundation: the basic assumptions of welfare economics are not an optimal benchmark for public finance; Pareto optimality cannot accurately explain the logic of collective action; and the definition of “market failure” is often departed from in fiscal practice. There are also theoretical errors in the definition of the relationship between government and market. The limitations of this theoretical basis are also reflected in practice. Therefore, we further design the matrix of a “lateral-center” model to test three kinds of classic phenomenon of “market failure”, which also proves that market failure theory is not applicable to public finance.
This study makes two contributions. First, although market failure theory is unable to explain many fiscal phenomena, Western finance still follows the applied economic routine and logic of “fiscal policy”. Therefore, it is difficult to get rid of the fetters of the single economic analysis paradigm. This paper proves the “failure” of market failure theory as the theoretical basis of contemporary fiscal science, promoting and stimulating disciplinary development and theoretical innovation in public finance. Second, although China's fiscal and tax reforms have always served to lead the socialist economic system reform, our knowledge of China's public finance is still limited to the description of phenomena and facts. Based on the argument that market failure theory is not the optimal basis for public finance theory, against the background of changes in China's fiscal function and practice, this paper calls for reconstructing the theoretical basis of public finance with Chinese characteristics to integrate “the theory of social common needs”, “public choice theory”, and the public governance model. This paper is thus a first step in establishing a public finance theory system that is based on Chinese reform but is also globally oriented.
Keywords： Market Failure; Fundamental Theory of Public Finance; National Governance System; School of Public Finance with Chinese Characteristics
JEL Classification： B25, G28, H20

Summary： This article develops a Marxist two-sector economic growth model, which combines Marx's labor theory of value, the theory of surplus value, the two-sector model, the simple reproduction and expanded reproduction formula, and the theory of the average rate of profit. It contributes to the literature by taking into account the average profitability of the two sectors, introducing the investment of fixed assets in the production process and labor-saving technological progress, and making use of Marx's expanded reproduction formula to derive the growth formulas of the total social products or national income in the two sectors. In addition, this article adopts Chinese macroeconomic data to empirically test the model's assumptions and conclusions.
The main results have several implications. First, the value of the commodity and the production price of the two sectors are determined by invested labor time under the established production technology conditions in this model. However, the production price ratio of the commodity in the two sectors is usually unequal to the value ratio. If the technical composition of capital in one sector is higher, the production price of the commodity will be higher than its value. The rate of profit and the surplus value rate are both equal between the two sectors. Second, considering the single-stage model under simple reproduction conditions, the output of the production materials sector will just compensate for consumption during the production of the two sectors. A surplus will remain after production from the consumption materials sector compensates for the consumption materials of the labor in the two sectors if and only if the rate of profit or the surplus value rate is greater than zero. Third, considering the multi-stage model under constant labor productivity and expanded reproduction conditions, there is no technological advancement and increase in the organic composition of capital. Therefore, the production growth rate of the two sectors is determined by the established production technology conditions. In general, the higher the organic composition of capital denoted by the production price, the higher the output growth rate. Under the conditions of Marx's accumulation and expanded reproduction, the output of the two sectors will increase gradually, while the part of the surplus products, which are consumed and accumulated by the owner of the production materials and then used to expand reproduction, will also increase gradually. Therefore, the consumption and material wealth of the production materials owner will gradually increase. If the amount of production materials paid to the unit labor force, i.e. the physical wages, remains unchanged in all periods, and all of them are consumed by workers to maintain their standard of living, the gap between the owner of production materials and the workers in terms of consumption and wealth will become larger and larger. Fourth, we introduce labor-saving technological advances into the model, assuming that labor productivity and the amount of production materials increase at the same speed, and that labor wages and labor productivity also increase at the same speed. These conclusions are similar to those in the case where labor productivity is constant. The higher the organic composition of the capital denoted by the production price at the beginning of the period, the higher the output growth rate. Finally, we adopt Chinese macroeconomic data to empirically test the model's assumptions and conclusions. The empirical results support the model specifications that the laborers' real wages and labor productivity increase proportionately, and that labor productivity and the amount of production materials increase proportionately, together with labor-saving technological progress. Judging from the course of China's economic growth, the law of “priority growth in the production sector” does exist. However, the general rate of profit expressed by market prices remains relatively stable most of the time.
The model constructed in this paper still has potential for further development. We plan to further study the mechanism of labor productivity improvement, and introduce the factors of China's institutional economic transition and macroeconomic policies into the model.
Keywords： Marxism; Two Sectors; Economic Growth; Expanded Reproduction; Equalization of Profit Rates
JEL Classification： E11, E22, O41

Summary： High asset prices, especially high house prices and high leverage, are two important issues that affect China's future economic growth and financial stability. For this reason, the central bank established macro-prudential monetary policies to stabilize the financial market beginning in the third quarter of 2009. This paper constructs a partial equilibrium model of house prices and credit leverage, then examines and analyzes the dynamic effectiveness of price- and quantity-oriented monetary policy rules on deleveraging and adjusting house prices from a time-varying perspective. Furthermore, due to the strong endogenous relationships between the leverage cycle, house prices, and monetary policy, we propose a time-varying parameter structural vector autoregressive model to effectively capture the feedback relationship between endogenous variables during 1996Q1 to 2016Q4.
The estimated results show that the monetary policy preference of quantity versus price rules targeting the leverage cycle adjusted over this period, while both monetary policies had a significant preference for targeting house prices that began during the subprime crisis. Furthermore, quantity-oriented monetary policies were more effective in controlling house prices and leverage rates. Therefore, the central bank should further strengthen the policy enforcement of quantity-oriented monetary policy targeting both the leverage cycle and asset prices, and should also activate the role of price-oriented monetary policy in deleveraging. The transmission channel by which interest rates influence asset prices through capital costs is not effective, which further restricts the role and effectiveness of price-oriented monetary policy in controlling asset prices. In addition, the parameter of price-oriented monetary policy targeting leverage has not always remained positive in the long run. Price-oriented monetary policy has only a short-term effect of regulating and controlling the two types of targets, while it lacks a long-term persistent effect. One major reason is that many policies do not have long-term coherence; another is that authorities lack guidance of people to have reasonable expectations of house prices. Therefore, ensuring that long-term policy remains consistent and cultivating people's rational expectation (even reverse expectation) of house prices are important conditions for improving the transmission effectiveness of monetary policy. Moreover, because quantity-oriented monetary policy is more effective in controlling house prices and leverage, preventing the bursting of the asset price bubble and an outbreak of systemic risk under high leverage which would endanger the real economy requires the central bank to strengthen the quantity-oriented monetary policy of targeting the two types of goals. In addition, the central bank needs to improve the price guidance function of the monetary market, which can further enhance the effectiveness of price-oriented monetary policy in influencing asset prices and the leverage cycle.
This paper makes three contributions. First, we construct a partial equilibrium model of house prices and credit leverage to explain the micro-mechanism of quantity- versus price-oriented monetary policies on house price and leverage dynamics. This model can effectively identify and capture the dynamic feedback relationship between endogenous variables. Second, through backstepping from a time-varying parameter vector auto regression model, we can derive a time-varying parameter structural vector auto regression model to accurately estimate the time-varying parameters of both price- and quantity-oriented monetary policies targeting the leverage cycle and asset prices, and then analyze the strengths and evolution of monetary policy in regulating and controlling both types of targets. Third, this paper uses dynamic analysis methods to identify and investigate the targeting degree and effectiveness of both price- and quantity-oriented monetary policies on the leverage cycle and asset prices in different periods in a time-varying framework in China. Finally, we propose several constructive policy suggestions based on our conclusions, which should allow authorities to deal with deleveraging and controlling house prices in different economic stages.
Keywords： Monetary Policy; Leverage Cycle; Credit-to-GDP Gap; Time-varying Parameters
JEL Classification： C52, E42, G10

Summary： This paper studies the labor allocation across Chinese cities and the implications for China's economic growth. Our study is motivated by the increasing focus on the efficiency of Chinese resource allocation. In addition, the study of urban labor allocation provides an important theoretical basis for exploring city size: the optimal urban size for achieving efficient labor allocation. In addition, given that recent policies from various levels of the Chinese government have been biased toward limiting the expansion of large cities, the main results of this paper have important potential policy implications.
Following the approach of Hsieh & Moretti (2018), we study labor allocation across cities and its implications for economic growth by constructing a spatial equilibrium model. In the model, a city's wage level depends on the city's productivity, living amenities (e.g., traffic, environment, education, culture, medical services), and land supply. From this model setup, wage dispersion across cities can be used to measure the efficiency of labor allocation in the economy; specifically, the smaller the wage dispersion, the more efficient the labor allocation. Therefore, the sources of aggregate economic growth can be decomposed into two components: the increase in total factor productivity (TFP) and the improvement in labor allocation across cities.
In our empirical study, we use city-level data, which include average annual wage, number of workers, value of gross domestic product (GDP), index of air quality, average worker characteristics (e.g., education, age, gender), land supply, road mileage, sales price of residential houses, and sales area of residential houses. Our empirical study includes 261 cities at prefecture level or above in China, which account for more than 90% of the national GDP and more than 85% of the total population. All of the data used in our analysis come from China Statistical Yearbook, China Urban Statistical Yearbook, China Regional Economic Statistical Yearbook, and China Land and Resources Statistical Yearbook. As in Hsieh & Moretti (2018), to make labor wages comparable across cities, we estimate conditional city-level wages by controlling for differences in average worker characteristics and obtain the residual city-level wages.
Based on empirical study and counterfactual calculations, this paper presents three key findings. First, the labor allocation across 261 cities in China improved substantially from 2000 to 2010, thus contributing positively to Chinese economic growth. Specifically, in terms of output per worker, the average annual growth rate caused by the improvement of labor allocation was about 2.34%, accounting for 19.78% of total annual growth in the period. In contrast, in the case of the U.S., Hsieh & Moretti (2018) find that labor allocation has worsened, generating losses in national output. Second, due to the improvement of labor allocation, the actual contribution of first-tier cities in China to national output is larger than a simple accounting measure of local GDP growth. Third, the labor misallocation across cities is still serious. In particular, first-tier cities in China are still smaller than optimal, while second-, third-, and fourth-tier cities are larger than optimal. If all of the wages of Chinese cities were set as equal and thus labor was perfectly allocated in China, about 60.54% of the labor should be reallocated across our 261 sampled cities in 2010. The number of workers in first-tier cities in China would increase by about 365%. The gain to aggregate output would be about 17.52%. This finding suggests that there are still large potential gains to be realized from improving labor allocation in China's economy.
Finally, this paper provides some policy recommendations. Specifically, existing restrictions on the sizes of China's first-tier cities should be further reduced, thus allowing them to expand. In terms of specific policies, the government can focus on improving traffic conditions in first-tier cities (represented by Shanghai and Shenzhen) and reducing air pollution (represented by Beijing) to enhance their attractiveness.
To conclude, this paper makes two contributions to the literature. First, by applying the approach of Hsieh & Moretti (2018) along with careful consideration of the macroeconomic characteristics of China, this paper studies labor allocation across Chinese cities. Second, it discusses the optimal sizes of Chinese cities at various levels and analyzes how to improve labor allocation efficiency across Chinese cities, both qualitatively and quantitatively.
Keywords： Labor Allocation in China; Optimal Size of Cities; Economic Growth of China
JEL Classification： E13, E24, J21, J31, R23

Summary： “Keynes' facts” and “Kaldor's facts”, which posit that the labor share remains stable over the long term, have been widely accepted in academic circles. However, aglobal decline in labor income began to appear in the 1980s that has aroused the concern of scholars all over the world. The decline of the labor income share has a number of serious consequences, such as reducing consumption demand, hindering economic growth, widening the income gap, increasing social conflicts, and weakening social and political stability.
China has made tremendous strides in development after 40 years of domestic reform and opening-up, not only becoming the world's second largest economy, but also making major contributions to global poverty reduction. However, China currently faces two issues in the field of income distribution: income inequality continues to rise and labor share continues to decline. As socialism with Chinese characteristics has crossed the threshold into a new era, the principal contradiction facing Chinese society has evolved. We now face a contradiction between unbalanced and inadequate development and the people's ever-growing need for a better life. Both governments and scholars are paying more attention to protecting the interests of the workers and safeguarding the rights of laborers.Because labor is a source of wealth and happiness, we must persist in advocating for labor and benefiting workers.Therefore, increasing the labor share of gross domestic product (GDP) and distributing benefits from economic development are important tasks in building a more widely prosperous society in the new era of socialism with Chinese characteristics.
The literatureon labor income share of GDP is limited in three aspects. First, it emphasizes macroeconomic analysis; few papers have presented micro-level studies that focus on enterprises. Second, although empirical studies are abundant,research on theoretical mechanisms is rare. Third, studies are usually based on single-factor analysis, and few studies have simultaneously considered the effects of various factors. This paper builds a model of the change of labor share by expanding Blanchard & Giavazzi(2003)using Chinese industrial enterprise data from 1998 to 2013. It is the first paper to investigate the influencing factors, decision mechanisms, and transmission paths of China's labor share from the perspectives of both market competition and institutional quality. The results show that, first, the decline of labor share is affected by both market and institutional factors. Second, the “market competitive effect” and “institutional quality effect” are two mechanisms that determine the change in China's labor share. The former mechanism significantly reduces China's labor share through technology bias and capital deepening. The latter takes effect through monopoly pricing and financing constraints;it can directly curb the decline in labor income share and indirectly mitigate the reducing effect of monopoly pricing on labor income share through the channel of labor bargain power. Third, the “market competitive effect” is the dominant mechanism in recent years. The main channel is technology bias and capital deepening, which are together the impetus of the continuous decline in China's labor share.
The findings of this paper have important implications for solving the decline in China's labor share.First, it is necessary to adhere to the direction of marketization. We must redirect the technology development strategy from the catch-up approach of “introduction and imitation” to “R&D and innovation”, and change the path of capital deepening from “strengthening capital and weakening labor” to “optimizing capital and improving skills”.Second, further institutional reform is needed. We must improve the institutional environment by deepening the reform of state-owned enterprises, building a new relationship between government and businesses, alleviating corporate financing constraints, and enhancing labor negotiation capabilities. Third, redistribution requires adjustment. Because the negative effect of the “Market Competitive Effect” is greater than the positive effect of the “institutional quality effect” at present, in addition to the intervention of primary distribution in factor income share, income redistribution policies are needed to effectively adjust income gaps and share the fruits of economic and social development.
Keywords： Labor Shares; Determination Mechanism; Market Competitive Effect; Institutional Quality Effect
JEL Classification： E64, J38, O33

Summary： State-owned enterprises (SOEs) play an extremely important role in China's economic development. However, SOEs have been criticized for their vulnerability to political intervention by the government and overall weak corporate governance, which leads to poor performance and relatively low governance efficiency. In November 2013, the Chinese government instituted mixed-ownership reform in SOEs, expecting that private capital would help SOEs improve their governance structure and implement more market-driven decision making and higher efficiency. However, because of the long influence of the planned economy and centralized system, the Chinese government has become used to controlling and intervening in SOEs. Therefore, the degree of mixed-ownership reform depends on the willingness of the local government to decentralize.
In this paper, we examine whether local governments' willingness to decentralize influences the degree of mixed-ownership reform in SOEs. Unlike prior studies that simply measure the mixed ownership of listed SOEs from the perspective of ownership structure, we measure the degree of mixed ownership from two angles: ownership structure and most importantly, board structure. To do so, we first manually collect information on the nature, relationships, and shareholding ratio of the top 10 shareholders in the annual report. We calculate the shareholding ratio of non-SOE shareholders as our first measure of mixed ownership in a listed SOE. We then read the background of each member of senior management to obtain information on the top 10 shareholders who assigned directors, supervisors, and managers. We calculate the ratio of senior management assigned by non-SOE shareholders as our second measure. Doing so allows us to comprehensively describe the current situation of mixed-ownership reform in SOEs and obtain much richer and more valid results.
Using a sample of listed SOEs in the Chinese A-share market from 2008 to 2015, we find that the weaker the local government's incentive to intervene in firm decisions, the higher the ratio of non-SOE shareholders and the higher the proportion of senior management assigned by those shareholders. This finding indicates that local government's willingness to decentralize significantly affects the degree of mixed-ownership reform in SOEs. We further examine whether this relationship differs across different types of SOEs. Our results show that in the dimension of ownership structure, decentralization by local government positively increases the degree of mixed-ownership reform in SOEs for different administrative levels and industries. However, for the dimension of board structure, this kind of positive effect only exists in SOEs controlled by local governments and in competitive industries. Finally, our results hold when we use a 2SLS regression to alleviate the potential endogeneity problem and use alternative proxies for the degree of mixed-ownership reform in SOEs.
This paper makes two main contributions. First, the current literature on mixed-ownership reform in SOEs has focused on the consequences of the reform. These studies conclude that the mixed-ownership reform in SOEs has positive effects on corporate governance in SOEs, such as enhancing internal control quality, improving accounting quality, and increasing executives' pay-for-performance. However, these papers have also ignored the endogeneity effect on SOE reform of the government's willingness to decentralize. To the best of our knowledge, our paper is the first to explore the influencing factors of mixed-ownership reform in SOEs from the perspective of government decentralization. Second, our findings have practical implications for SOE reform policy. Our findings indicate that government willingness to decentralize has significant influence on the implementation of SOE reform; therefore, the central government should include the utility function of local governments in its consideration when making policy. In addition, the government may consider allowing more private shareholders to assign more directors or other senior managers in central-controlled and monopoly SOEs to further induce substantive governance by private shareholders and deepen mixed-ownership reform in these firms.
Keywords： State-owned Enterprises; Decentralization; Mixed-ownership Reform; Ownership Structure; Board Structure
JEL Classification： L22, G38, G32

Summary： In recent years, China's annual investment in research and development (R&D) has increased by more than 15%. In 2016, the ratio of R&D investment to gross domestic product in China reached 2.1%, exceeding the European Union average (1.91%) and approaching the average of high-income countries (2.38%).However, this increase in the level of investment in science and technology innovation has not resulted in a significant increase in China's total factor productivity. Following China's entry into the middle and late stages of industrialization, the growth rate of total factor productivity and its contribution to economic growth have declined. Thus, China's scientific and technological innovation activities have not only failed to promote the transformation of economic growth from a factor-driven to an innovation-driven mode, but also had an inhibitory effect. We term this phenomenon China's technological innovation dilemma. It is our belief that understanding the different functions of government support in scientific research and technology development can help us to solve the dilemma of technological innovation through targeted government support and thus improve total factor productivity. Although the literature has thoroughly explored the role of government support in science and technology innovation activities, few studies have explored the complex mechanisms and effects of government support on total factor productivity while considering the effect of heterogeneous R&D.
First,we discuss the different influence mechanisms of scientific research and technology development on total factor productivity, and systematically analyze the effect of government support on different types of scientific and technological innovation activities, based on the different characteristics of these two types of innovation activities. The conclusion of our theoretical analysis is that while scientific research has no direct effect on total factor productivity in the short term, vigorous and stable government support is conducive to the promotion of scientific research that ultimately increases total factor productivity.Technology development has a direct but complicated effect on total factor productivity, although government support for technology development activities is necessary, especially in developing countries. However, excessive government support is clearly not conducive to the promotion of total factor productivity through technology development.
Second, we use provincial panel data from China from 1998 to 2014 to conduct an empirical test of these conclusions. Focusing on the different impacts of scientific research and technology development activities on improving total factor productivity, we use several different methods to test the interaction effect between government support and two types of scientific and technological innovation activities. The empirical results show lagging positive interaction effects between government support and scientific research on the improvement of total factor productivity, but the interaction effects between government support and technology development are not significant in all cases.
Finally, we construct a dynamic panel smooth transfer model to identify the function boundaries of government support in different types of scientific and technological innovation activities. For scientific research activities, the transfer function with government support strength as the threshold variable is a logical function. Thus, scientific research can promote total factor productivity only if government support exceeds a certain threshold. For technology development activities, the transfer function with government support as the threshold variable is an exponential function. Thus, while government support is within a reasonable range, there is less inhibition of total factor productivity by technology development activities. Over-support aggravates the inhibition of total factor productivity by technology development activities. Our study shows that governments should provide targeted support, strongly support scientific research, and avoid technology development in enterprises and markets. Doing so will not only avoid the adverse consequences of heterogeneous R&D, but also help to solve the dilemma of China's scientific and technological innovation.
Keywords： Scientific Research; Technology Development; Government Support; Total Factor Productivity
JEL Classification： O30,O32

Summary： China's industrial policy (IP) plays an important role in allocating resources, supporting industry development, and alleviating backwardness. Especially in contemporary China, where industrial structure upgrading and elimination of excess capacity are urgently needed, IP has an important impact on micro-enterprise investment decisions, profit growth, and the transformation and development of macro industries (Aghion et al., 2015). In this study, we address the following question: does IP affect firm diversification? IP has a strong function of resource allocation and management. Compared with non-supported industries, supported industries often receive government subsidies and tax relief. Because diversification requires a large amount of resources, enterprises supported by IP have more resources to conduct diversified operations. We define this mechanism as the “support effect”. However, IP also limits the development of non-supported industries and gradually eliminates or transforms them (Jiang & Li，2010). In response, non-supported enterprises may enter the supported industries through diversified operations, which is termed the “driving force effect”. These two mechanisms in the relationship between IP and corporate diversification thus work in opposing directions.
Based on data from Chinese A-share listed companies from 2002 to 2017 and using multiple measurement methods such as a difference-in-difference model, this paper explores the relationship between IP and corporate diversification and its economic consequences. The results show that (1) compared with enterprises supported by IP, non-supported enterprises have a higher degree of diversification and are more involved in industries supported by IP; (2) IP reduces government subsidies and tax incentives for non-supported enterprises that involve themselves in supported industries by diversifying, which can help them avoid such restrictions; and (3) diversified behaviors of non-supported enterprises involved in supported industries not only improve the value but also increase the productivity of those industries.
The policy implications are as follows. When faced with the restriction of IP, non-supported industries (enterprises) can step into the supported industries through diversification to realize their own transformation or growth. Therefore, micro-enterprises should pay close attention to macro-economic policies and take timely and appropriate countermeasures. However, IP has a strong function of resource redistribution. Thus, in the process of IP formulation and implementation, government should consider not only the impact on supported industries (enterprises), but also the behavior selection and development trend of non-supported industries (enterprises).
The paper makes several contributions. First, it provides a new micro mechanism for IP's promotion of industrial structure transformation, as IP forces enterprises from other industries to diversify when it supports certain industries. Second, as an important means for the government to regulate industrial development and guide enterprises to enter or exit particular industry sectors, IP is an essential incentive to drive Chinese enterprises to adopt diversification, which enriches the determinants of enterprise diversification in emerging markets from the institutional level. This paper also provides some empirical evidence for a diversification premium based on China's IP perspective. Third, the literature on micro-enterprises' response to the external environment through alternative mechanisms mainly discusses political or bank connections. Few studies have focused on the strategy selection of enterprises themselves. From the perspective of diversification, this paper examines the coping strategies of enterprises not supported by IP and expands the existing research. Fourth, this paper clarifies the institutional roots and reverse effect of corporate behavior choices on the implementation of macroeconomic policies when firms face regulation due to those policies while accounting for the interaction between the “point” analysis of micro-enterprise behavior and the “feedback” mechanism of macroeconomic policy.
Keywords： Industrial Policy; Diversification; Support Effect; Force Effect
JEL Classification： L22, G38, L53

Summary： With the market-oriented reforms in the past four decades, China has achieved remarkable economic growth. However, this comes at the cost of resource depletion and environmental degradation, which have become great challenges to China's sustainable development. As the largest developing country, “development is the top priority” in China, because the rapid economic growth matters for the very survival and increasing living standards for the 13 billion people. How to keep balance among economic growth, resource conservation and environmental protection is a difficult but urgent issue. It is thus imperative for China to develop a new pathway of green economic growth, achieving resource conservation and environmental improvement while integrating economic growth.
Yet, resource-abundant regions may suffer from more severe resource and environmental challenges. Because the economy in these regions usually relies heavily on resource-based industries, such as resource mining, processing and utilizing, which increases the difficulty of green growth transition in these regions. In this paper, we apply a non-radial directional distance function to construct the indicators for measuring green economic growth, and then empirically examine how resource abundance affects green economic growth. In particular, we pay attention to revealing the underlying mechanisms and transmission pathways of these effects.
This paper employs a panel data set for prefecture-level cities in China. The sample cities cover provinces (autonomous regions and municipalities) not including Taiwan, Hong Kong, Macao and Tibet. The original data are obtained from China Premium Database, and the China City Statistical Yearbook.
The results show that resource abundance may lead to a “curse” to the green economic growth. Two mechanisms are verified from comparative advantage and innovation incentive. Abundant natural resources increase the comparative advantages of enterprises in resource-intensive industries. Therefore, the regions with abundant resources are gradually specialized toward more resource-intensive sectors, which would be locked-in and path dependent. Meanwhile, abundant natural resources may impede the incentives of technological innovation in improving the efficiency of resource use, which is also one of the main sources of pollutant emissions. As a result, there is insufficient impulse and capability of the resource-abundant regions to conduct green growth transition.
Moreover, we identify three pathways. First, abundant natural resources crowd out R&D investment, and thus weaken the ability of the region to carry out technological innovations on resource saving and emission mitigating, and thus reduce the potentials to achieve green economic growth. Second, abundant natural resources have an adverse effect on foreign trade, inhibiting the diffusion of technologies and managerial experiences from international markets to resource-abundant regions. Third, natural resource advantage increases the share of secondary industry, which also negatively affects green economic growth in these regions.
It is worth noting that this paper does not indicate the pessimism about the sustainable development of resource-abundant regions, but suggests that by adopting appropriate policies, it is possible to prevent these regions from falling into the trap of natural resource curse to green economic growth. In terms of policy implications, first, resource conservation and environmental protection need to be emphasized more in the performance evaluation system for local officials, thereby improving the local efforts to improve resource and environmental performance. Second, the diversification of industrial structure and leapfrog to upgraded technologies have to be encouraged, thus alleviating the locked-in effect and path dependence brought about by resource-led specialization. Third, regional integration needs to be encouraged, which could promote resource flow from resource-rich regions to resource-poor regions.
Previous studies have been limited in analyzing the relationship between natural resources and rise and fall of GDP, while the impact of resource abundance on sustainable development has been ignored. We anticipate this paper to provide some new insights for investigating green economic transition, as well as examining the relationship between resources and sustainable development.
Keywords： Green Economic Growth; Natural Resource Curse; Innovation Incentives; Industrial Specialization
JEL Classification： Q01, O13, R11

Summary： The Paris Agreement, created at the 21st Conference of the Parties (COP21) of the United Nations Framework Convention on Climate Change (UNFCCC) on December 12, 2015, lays a solid foundation for post-2020 action to address global climate change. As the world's largest greenhouse gas emitter, China must play a major role in combating climate change, and thus made an important contribution to reaching the agreement. In the Paris Agreement, China proposed nationally determined contribution (NDC) targets, and pledged to peak its carbon emissions in around 2030, reduce carbon intensity by 60-65% (relative to 2005 levels), and increase its share of non-fossil energy consumption to 20% by 2030. In view of China's key position in tackling global warming, the rationality and feasibility of China's NDC targets have been the subject of controversy among scholars and policymakers; nevertheless, some key issues remain to be explored. First, previous studies mainly focus on whether China can achieve its carbon mitigation target or non-fossil energy target, but little attention has been paid to the relationships between these targets, and the coordination of different policy targets in particular has rarely been examined. Second, despite much discussion of the timing of carbon emission peaking, it is still unclear under which conditions and at what cost China can peak its carbon emissions. Third, different policy instruments may be used to achieve the carbon peaking target, such as carbon pricing and subsidies for non-fossil energy, but few studies have quantitatively shown how to optimize the combination of these policy instruments to lower the economic costs.
In this paper, we construct an integrated energy-economy-environmental model, which captures the nexus among energy consumption, economic growth, and greenhouse gas emissions; specifically, a detailed energy system is incorporated into the model, which allows us to describe the dynamic energy structure evolution. Based on this model, China's committed NDC targets of energy and climate are systematically assessed, and the future paths of key indicators under different policy scenarios are presented, including carbon emissions, carbon intensity, non-fossil energy development, and economic growth (GDP).
We also aim to explore policy initiatives for reaching China's energy and climate targets, and analyze the potential relationships and coordination between such initiatives. The results show that with the initiatives adopted during the 12th Five-Year Plan, the lower bound of the carbon intensity reduction target (60%) can be achieved, while additional policies are still needed to reach the upper-bound (65%), carbon peaking, and non-fossil energy development goals. Comparison of the policy initiatives needed to achieve these three targets shows that the carbon intensity target is relatively easy to attain, followed by the carbon peaking target, while the policy needed to reach the non-fossil energy target is the hardest to achieve. As no definite carbon peak level is predetermined in the NDC targets, there are multiple paths for China to peak its carbon emissions, given different policy scenarios; this study proves that a policy mix of carbon pricing and non-fossil energy subsidies can attain the targets at relatively low cost. More specifically, with an initial carbon price of 50 yuan/tCO2 and a 30% non-fossil energy subsidy, all of the targets can be achieved simultaneously, with an annual GDP loss ranging from 0.7% to 1.2% and an average level of 0.87%.
The policy implications are as follows. First, to realize China's NDC targets, particularly the carbon peaking and non-fossil energy targets, additional policy measures (e.g., a carbon pricing policy) may be necessary. Second, the carbon mitigation and non-fossil energy development targets should be coordinated in practice to avoid possible conflict. Third, the policy mix of carbon pricing and non-fossil energy subsidies can be optimized to lower the carbon control cost.
Keywords： Paris Agreement; Energy and Climate; Nationally Determined Contributions; Policy Coordination; Energy-Economy-Environmental Integrated Modeling
JEL Classification： Q43, Q56, Q58

Summary： Worker safety and occupational injuries are critical issues in government regulation policies in China. If China's workplace safety policy is to be clear and precise, evaluating and measuring the cost of occupational injuries, that is, assigning the value of occupational injuries, are key to workplace safety policy design in China.
Based on comparing several methods of calculating the cost of occupational injury—life value theory, the compensation practice of Chinese laborers' occupational injuries, and the mainstream approach to measuring value of statistical life (VSL) in current research—this paper chooses a hedonic model to evaluate the cost of Chinese laborers' occupational injuries. Using data from China Family Panel Studies (CFPS) (2010) and The Safe Production Statistics Yearbook (2009), this paper proposes a VSL regression model and obtains the VSL of Chinese laborers in 2010. If the relation between lethal risk and wage is a quadratic curve, the estimate result shows the laborers' VSL is RMB51,298,200. If the relation between lethal risk and wage is a linear curve, the estimate result shows the laborers' VSL is RMB3,573,500. Furthermore, we propose a quantile regression to simultaneously explore the result of VSL, and find that the VSL of laborers in the 50% quantile is RMB51,323. To eliminate heterogeneity and endogeneity issues, we introduce the non-parametric boundary analysis method and apply the MTR-MTS joint hypothesis, and find the workers' VSL to be between RMB12,750 and RMB41,731.
No matter which measurement method is used, the value of statistical life is much higher than the current compensation standards in China. This discrepancy has two serious consequences. One is that the cost of occupational injuries is transferred from enterprises to laborers in China. Therefore, production accidents occur frequently because there is no significant impact on enterprises. The other consequence is that the laborer's value of statistical life is far higher than the cost that an enterprise can afford in China. Thus, this paper suggests that compensation standards for workers' death or injuries should be adjusted over time. In particular, the compensation standards should be transformed from maintaining the living standards of workers and their relatives into promoting their living standards. Doing so will give high priority to safer production and push the government to develop safer production standards in China.
This paper suggests the following marginal improvements. First, it attempts to combine risk theory of production and life value theory with Chinese practice. Based on theory of the value of statistical life, this paper measures the social cost and affordable capability of Chinese enterprises. It enriches the research related to social ethics, corporate ethics, and social welfare distribution. Second, this paper further considers endogeneity problems under limited information on occupational injury data. Through discussing two types of individual ability (cognitive and non-cognitive capabilities), the measurement of occupational socioeconomic status, and the degree of occupational risk, this paper considers the endogeneity problems that arise from ignorance of laborers' abilities and the heterogeneity of risk preferences and production conditions (Hwang et al., 1992). In addition, this paper uses the control function method proposed by Wooldridge (2009) to examine the value of statistical life under different conditions of income level distribution, which effectively controls endogeneity problems and expands on the work of Qin et al. (2010) and Qian (2011). Third, using the non-parametric boundary analysis method proposed by Manski (1990, 1997, 2000), this paper measures the range of the value of statistical life. It reduces the bias caused by the lack of instrumental variables and also narrows the differences in the estimated value of statistical life obtained by various methods.
Keywords： Value of Statistical Life; Cost of Occupational Injuries; Hedonic Model; Non-parametric Boundary Analysis
JEL Classification： J38, J33, I00