David Dollar

Shang-Jin Wei

Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreignowned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its investment intensity by 5 percent of GDP without sacrificing its economic growth (and hence deliver a greater improvement to its citizens' living standard).

Firm Ownership and Investment Efficiency in China

Das (Wasted) Kapital

Paul Glewwe

Nisha Agrawal

With the adoption of new market-oriented policies, Vietnam has transformed itself from one of the world's poorest countries during the 1980s, into an economy with one of the highest growth rates during the 1990s. Using macroeconomic and household survey data, this publication examines a range of issues including: the causes of Vietnam's economic growth and future prospects; the impact on household welfare and poverty levels, school enrolment, child health and other socioeconomic outcomes; and the nature of poverty in Vietnam and the effectiveness of government policies for poverty reduction, drawing lessons for Vietnam and for other low-income developing countries.

Economic Growth, Poverty, and Household Welfare in Vietnam

Edward N. Wolff

Edward N.. Wolff

Professor of Economics Edward N Wolff

David Dollar and Edward Wolff look at claims that a deindustrialized United States ison the road to secondrate status in the global marketplace and find them to be both unfounded andsimplistic. Their systematic and empirical investigation of the mechanisms through which countrieslike Japan and Germany have caught up with the United States in terms of productivity and standardof living will inform public debate about which government policies are likely to improve a nation'scompetitiveness.Looking at productivity convergence from the industry and subindustry level, Dollarand Wolff also examine questions of the relationship of productivity growth in individual industriesto convergence of overall productivity in developed countries, the identification of industriescrucial for aggregate productivity growth, the sources of productivity growth within industries, therelationship between international trade and productivity convergence, and whether the samemechanics of convergence are at work in developing countries.The authors' findings reveal, amongother things, that the slowness of U.S. productivity growth relative to other nations is largely dueto forces pushing for convergence of aggregate productivity levels. Although other countries havebeen catching up with the U.S., there is no evidence that they will surpass the US. or that the U.S.has deindustrialized.Perhaps most important, Dollar and Wolff find that countries catch up byraising their productivity levels in all manufacturing industries, not by large shifts of theiremployment and output from low- to high-value-added sectors. The growing similarity of advancedeconomies in terms of overall productivity masks a continued high degree of specialization inparticular industries. Today different countries are the productivity leaders in differentindustries. Accordingly, the authors recommend that public policy focus on institutions and policiesto promote innovation in general, rather than in key industries, and on free trade rather thanprotectionism.David Dollar is Senior Economist at the World Bank. Edward N. Wolff is Professor ofEconomics at New York University.

Competitiveness, Convergence, and International Specialization

Yiping Huang

Describing how China is in the lead in transforming finance for the digital age China has been at the forefront of one of the most important revolutions in contemporary business practices: the rapid growth of digital finance. From mobile payments to online investment, from Big Tech lending to digital insurance, and from open banking to central bank digital currency, China has been among the most advanced—sometimes the most advanced—of the major economies in adopting technologies that are changing both the financial system and the lives of millions of people. China has been especially far-sighted in promoting financial inclusion—offering financial services for the first time to people regardless of their location, job status, or income. This book is the product of a joint research project between economists at the National School of Development, especially the affiliated Institute of Digital Finance, at Peking University and at the Brookings Institution. It investigates the impact of financial technology on job creation, income distribution, and consumer welfare in China. It also examines larger systemic issues such as monetary policy, stability of the banking sector, and international trade and payments. With a primary focus on the development of digital finance in China, most of the contributions are from Chinese economists. But the volume also considers implications for the rest of the world in several chapters written by international economists from Brookings. The depth and breadth of the descriptions and analysis in this ground-breaking book will appeal to scholars of China, finance professionals, and policymakers around the globe.

The Digital Financial Revolution in China

Yang Yao

How will China reform its economy as it aspires to become the next economic superpower? It’s clear that China is the world’s next economic superpower. But what isn’t so clear is how China will get there by the middle of this century. It now faces tremendous challenges such as fostering innovation, dealing with ageing problem and coping with a less accommodative global environment. In this book, economists from China’s leading university and America’s best-known think tank offer in depth analyses of these challenges. Does China have enough talent and right policy and institutional mix to transit from input-driven to innovation-driven economy? What does ageing mean, in terms of labor supply, consumption demand and social welfare expenditure? Can China contain the environmental and climate change risks? How should the financial system be transformed in order to continuously support economic growth and keep financial risks under control? What fiscal reforms are required in order to balance between economic efficiency and social harmony? What roles should the state-owned enterprises play in the future Chinese economy? In addition, how will technological competition between the United States and China affect each country’s development? Will the Chinese yuan emerge as a major reserve currency, and would this destabilize the international financial system? What will be China’s role in the international economic institutions? And will the United States and other established powers accept a growing role for China and the rest of the developing world in the governance of global institutions such as the World Trade Organization and the International Monetary Fund, or will the world devolve into competing blocs? This book provides unique insights into independent analyses and policy recommendations by a group of top Chinese and American scholars. Whether China succeeds or fails in economic reform will have a large impact, not just on China’s development, but also on stability and prosperity for the whole world.

Economic Challenges of a Rising Global Power

China 2049

Paul Collier

Globalization - the growing integration of economies and societies around the world, is a complex process. The focus of this research is the impact of economic integration on developing countries and especially the poor people living in these countries. Whether economic integration supports poverty reduction and how it can do so more effectively are key questions asked. The research yields 3 main findings with bearings on current policy debates about globalization. Firstly, poor countries with some 3 billion people have broken into the global market for manufactures and services, and this successful integration has generally supported poverty reduction. Secondly, inclusion both across countries and within them is important as a number of countries (pop. 2 billion) are failing as states, trading less and less, and becoming marginal to the world economy. Thirdly, standardization or homogenization is a concern - will economic integration lead to cultural or institutional homogenization?

Building an Inclusive World Economy

Globalization, Growth, and Poverty

Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreignowned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its investment intensity by 5 percent of GDP without sacrificing its economic growth (and hence deliver a greater improvement to its citizens'' living standard).

David Dollar

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