It has been widely argued that firms obtain loans with relaxed terms if they are politically connected. This column presents evidence from Indonesia that firms whose owners or directors have a personal relationship with a politician are more likely to have their loans approved by state-owned banks, and are more likely to receive the full amount applied for. However, the labour productivity of such firms is on average lower. This suggests that in some cases, politically connected lending may distort the efficiency of resource allocation and be detrimental to economic development.
Jiangtao Fu, Daichi Shimamoto, Yasuyuki Todo, 01 December 2015
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 27 November 2015
Economists often disagree on China’s prospects. This column provides the results from a survey of top UK-based macroeconomists by the Centre for Macroeconomics (CFM). It turns out that three quarters of the experts believe that China’s annual growth rate will be less than 6% over the next ten years or so. But the panel is divided on whether the slowdown will have a significant impact on the UK economy.
Meredith Crowley, Huasheng Song, 22 October 2015
Europe has a trade policy for solar panels that is designed to level the playing field between Europe and countries like China. This column assesses the EU’s stance. Antidumping policy is supposed to promote a fair competitive environment between domestic import-competing and foreign exporting firms. However, evidence suggests that publicly listed Chinese private sector firms experienced large losses under Europe's import restrictions, while state-owned enterprises experienced little or no adverse impact. Rather than fostering fair competition in green energy products, Europeans have unintentionally tilted the playing field against the Chinese private sector in favour of the state.
Maurice Obstfeld, 17 October 2015
In this column, the IMF's new Economic Counsellor and Director of Research presents the latest World Economic Outlook, which shows how the world economy is at the intersection of at least three powerful forces. First is China’s economic transformation away from export- and investment-led growth and manufacturing, in favour of a greater focus on consumption and services; second is the fall in commodity prices; and third is the impending normalisation of monetary policy in the US.
Anton Cheremukhin, Mikhail Golosov, Sergei Guriev, Aleh Tsyvinski, 02 September 2015
Economists tend to focus on reforms that came after 1979 when explaining China’s soaring economic growth. This column argues that they shouldn’t. Mao’s policies also had a huge effect and should not be ignored. Economists and policymakers would do well to look further back in history. A long-term perspective might also help them bust a few myths along the way.
Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, 01 August 2015
China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.
John Gibson, Chao Li, 23 July 2015
The size of cities in China – and the effects of city size on productivity – are important topics for urban economists. This column argues that the data used in many previous studies of Chinese cities do not stand up to scrutiny because they do not take nearly enough workers into account. More comprehensive data on city employment from China’s 2010 census suggest that there are lots of inefficiently small cities.
Sourafel Girma, Yundan Gong, Holger Görg, Sandra Lancheros, Christiane Krieger-Boden, 24 July 2015
In the run-up to WTO accession in 2001, China considerably liberalised its policy towards FDI. This column argues that foreign acquisitions contributed significantly to raising export activities and R&D activities, though rather through joint ventures than whole acquisitions.
Johan Hombert, Adrien Matray, 11 July 2015
The rise of China has been identified as a major source of disruption for the manufacturing sector in high-income economies. This column argues that innovation helps firms to escape import competition from low-wage countries. It uses variation in R&D tax credits across years and US states to show that firms' R&D capital stock has a causal effect on their resilience to trade shocks.
Matthew Kahn, Cong Sun, Siqi Zheng, 08 July 2015
China’s cities suffer from extremely high levels of air pollution, and Chinese consumers spend more than $US100 million on anti-smog products per year. Using recent internet sales data, this column explores how investing in such self-protection products varies for consumers with different income brackets. The urban poor are shown to be less likely to engage in this health-improving strategy. This suggests that cross-sectional income comparisons understate lifetime inequality.
Bernard Hoekman, 24 June 2015
The world’s trade-to-GDP ratio climbed steadily for six decades. The rise slowed even before the Global Crisis and world trade growth has been anaemic since 2010. Recent data shows it declining, leading some to wonder whether global trade has peaked. This column introduces a new eBook that examines the issue from a wide range of perspectives. No consensus emerges but it is clear that this is not just a cyclical issue – something structural changed.
Ryuhei Wakasugi, 02 June 2015
The Chinese government significantly restructured and modernised its economy to gain WTO accession in December 2001. This column examines how WTO entry affected different types of firms. It finds that both private and State-owned firms became more productive after WTO entry yet these productivity gains did not translate into a higher propensity to export for State-owned enterprises.
Christopher Adam, Ugo Panizza, Andrea Presbitero , David Vines, 12 May 2015
World leaders are preparing for the third International Conference on Financing for Development in Addis. More money may help, but may also make things worse due to aid dependence, Dutch disease, and/or unsustainable debt. This column argues that the political discussion needs to be accompanied by more, and better data and research on how financing can support sustainable development.
Joshua Aizenman, Yothin Jinjarak, Huanhuan Zheng, 04 May 2015
China’s export-led growth has coincided with the country becoming one of the largest net global creditors. This column looks ahead to the next chapter of Chinese ‘outwards mercantilism’ – FDI investment in natural resources, commodities and mining bundled with access to finance and the export of Chinese capital products and labour services.
Peter Robertson, 30 March 2015
The Soviets matched the US only by spending up to 20% of GDP on the military during the Cold War. This column argues that, in stark contrast to this example, China has the potential to match the US in certain military spheres with similar burden on its economy. Using exchange rates comparisons significantly understates the Chinese military spending. A much more realistic assessment is obtained using PPP terms. If both countries spent the same fraction of their GDP on the military, the relative size of China’s military machine would be more than 90% of the US one.
John Whalley, Daqing Yao, 23 February 2015
Since September 2013 China has been operating a new form of free trade zone based in a small area of Shanghai. This column describes the implied new trade and investment policies in detail and concludes that the new special zone is likely to be a first step towards a floating exchange rate, free capital account and independent monetary policy.
Carlo Carraro, 07 February 2015
China and the US have recently agreed to reduce their greenhouse gas emissions. This column asks what quantifiable impact the new targets will have, whether they are any better than previous approaches, and if so, whether they are enough to avoid dangerous climate change. While insufficient for keeping temperature increase below the 2°C limit, the US and China’s bilateral commitments are a step in the right direction, and form the basis for a stronger international agreement in Paris later this year.
Alex Cukierman, 07 January 2015
The Global Crisis has increased the importance of the renminbi as an international currency. This column describes how the status of the renminbi has changed relative to that of the dollar and the euro. It also discusses what their future as future currencies would be. The author suggests that within 10 years, the renminbi would be at least at par with the dollar as a regional trade settlement currency in East Asia. It is also likely to become a close second to the euro as a world reserve currency.
James Wang, 30 December 2014
Many lenders hire loan officers to screen soft information that may otherwise be ignored by credit scoring. However, in addition to their compensation costs, loan officers may have characteristics, such as being overly cautious, that could distort their decisions. This column documents the performance of loan officers using data from a Chinese lender. Despite the distortions, the loan officers contribute three times their pay in annual profits above what the lender could have earned by itself, even with the benefit of hindsight.
Samuel Marden, 28 December 2014
It is often argued that for poor countries, increases in agricultural productivity result in higher non-agricultural output, but the theory is ambiguous and the empirical evidence is limited. This column presents evidence from a natural experiment provided by China’s early 1980s agricultural reforms. Higher agricultural output induced by the reforms led to quantitatively important growth in non-agricultural output. This growth appears to be primarily due to rural savings increasing the supply of capital to the non-agricultural sector.