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Is human capital heterogeneity a decisive factor for Chinese enterprises to invest in Africa? Based on the Outward Foreign Direct Investment (OFDI） data of Chinese enterprises in 37 African countries from 2007 to 2017, this paper using the FGLS model, is the empirical analysis of the mechanism and effect of the human capital heterogeneity of host countries on OFDI location selection. The human capital heterogeneity can be divided into four dimensions: scale, quality, cost and structure, which can be measured by health level, education level, wage level, child dependency ratio and old-age dependency ratio. The results show that: (1) the host country's human capital scale and child dependency ratio structure have a significant positive impact on decision-making for OFDI; (2) the cost of human capital and the structure of old-age dependency ratio are negatively correlated with the inflow of OFDI; (3) different from the existing conclusions, the quality of human capital will inhibit the inflow of OFDI in the sample period; (4) the extended test shows that the quality of human capital has a significant positive impact on OFDI decision-making. The results of robustness test are reliable. Finally, according to the conclusion of this paper, policy recommendations are put forward.

Comprehensively considering the factors of environmental pollution, financial development and spillover effects, this paper analyzes the spatial dependence and clustering characteristics by selecting provincial panel data from 2005 to 2018. Meanwhile, considering geographic distance, economic distance and asymmetric factors, the optimal spatial econometric models are determined by constructing five different weight matrices and utilizing spatial panel models. The results show that (1) there existed significant positive correlation in the regional economic development and the spatial dependence played a significant role in promoting the economic development; (2) the direction and significance of spatial spillover effects were consistent under different spatial weights, and the spatial weight which considered geographical distance, economic distance and asymmetric factors proved to be the best; (3) the environmental pollution had a significant positive correlation with economic growth; (4) financial development had some positive effects on economic growth; (5) financial development was conducive to reducing the impact of environmental pollution on economic growth, and the promotion of environmental quality could strengthen the role of financial development in promoting economic growth; (6) from the perspective of regional heterogeneity, the cross terms of environmental pollution and financial development were not significant in the eastern region, but significantly negative in the central and western regions.

Considering three monetary policy rules, together with two endogenous macroprudential policies that are credit constraints (loan to value, LTV) for households and counter-cyclical capital (capital requirement ratio, CRR) for bankers, this paper establishes a dynamic stochastic general equilibrium (DSGE) model. Based on the welfare analysis of different combinations of macroprudential rules and monetary policy rules, this paper identifies the optimal policy combinations and analyzes the coordination effects between macroprudential policies and monetary policies. The results show that no matter what kind of monetary policy rules is implemented, the introduction of macroprudential rules has improved the level of total social welfare. In the optimal “two pillars” framework of monetary policies and macroprudential rules, the main objective of monetary policy is to stabilize price inflation, and the macroprudential policy to be implemented is the CRR macroprudential policy. This combination can effectively promote the stability of the real estate market, financial market, and macroeconomy, while maximizing the improvement of total social welfare.

This paper highlights a prominent yet neglected feature of North–South trade, namely that the Northern currency is used as the medium of exchange. It investigates how this feature may affect the way real and monetary shocks are transmitted from the North to the South through trade. It shows that technological progress in the North benefits its Southern trading partner. However, if Southern consumers need to hold Northern money to pay for imports, a monetary expansion in the North hurts the South. In particular, it increases the demand for Northern money in the South, which has to be met by a transfer of real resources from the South to the North. This has an adverse effect on the terms of trade for the South and on the trade balance for the North. This last result is supported by our empirical analysis which shows a positive correlation between US money supply and US bilateral trade deficits with Mexico and with India.

The Chinese government has been active in trying to cool the alleged bubbles in its housing markets, especially in urban areas. This paper argues that the high housing prices are partly caused by some real factors, including the policy of restricting land uses, in particular the maintenance of a minimum overall agricultural acreage. A simple model of three sectors (housing, agriculture, and others) is constructed to examine the effects of the artificial constraint. The role of increasing returns in the non-agricultural sectors in exacerbating the policy biases is also examined. The model is then calibrated to estimate the effects of land use control policy on housing prices in China.

This paper develops a general equilibrium monetary model to study China–US trade relations. The model captures two main features of China–US trade: China's fixed exchange rate regime and the use of the US dollar as the international medium of exchange. The main conclusions of this paper are threefold. First, an improvement in the productivity of China's tradable sector would benefit both China and the US. Second, a RMB appreciation would reduce consumption in the US and increase consumption in China, and would likely reduce China's trade surplus. It would also lead to a contraction in China's tradable sector and an expansion in US's tradable sector. Third, a monetary expansion in the US would hurt China because it would lead to a transfer of wealth from China to the US, a fall in China's relative wage rate and terms of trade, and an artificial expansion in China's tradable sector. A US monetary expansion would also increase China's trade surplus.

Monetary shocks and how they are transmitted internationally are investigated in this paper. The paper shows that where a national currency is used as an international medium of exchange, the international money is non-neutral. In particular, an increase in the supply of the international money leads to a transfer of real resources to the international money-issuing country from its trading partner. It also induces an expansion of the nontradable sector in the international money-issuing country, and an expansion of the tradable sector in its trading partner. The real impact of a monetary shock is greater under a fixed exchange rate system than under a flexible exchange rate system.

This paper presents a simple model to investigate the effectiveness of foreign aid. It shows that foreign aid is most effective if it is given to a market economy with relatively high transaction efficiency. If transaction efficiency in a market economy is low due to, for instance, bad institutions or policies, then foreign aid will either be largely dissipated as transaction costs or can even lead to retrogression of market activities. In either case, it will be more effective to give foreign aid to poor primitive economies with no developed markets.

This paper develops a general equilibrium three-goods Ricardian model that extends Samuelson's example on the impact of productivity progress. Our model highlights Samuelson's insight that productivity progress can change the pattern of trade and in turn can have dramatic welfare implications. It also shows that while Samuelson is correct that productivity growth in one country can hurt another, the loss is not as permanent as his example appears to suggest. Continuing productivity growth in one country is likely to benefit all trading countries in the long run.

A model with both market production and home production is used to show that, ignoring administrative costs and indirect effects (such as rent-seeking), even if both the home and the market sectors have the condition of increasing returns and there are no pre-existing taxes, it is still efficient to tax the home sector to finance a subsidy on the market sector to offset the under-production of the latter. This under-production is due to the failure of price-taking consumers to take account of the effects of higher consumption in reducing the average costs and hence prices, through increasing returns or the publicness nature of fixed costs. Within market production, it is efficient to subsidize more the sector with a higher fixed cost, a lower elasticity of substitution between goods (higher value of diversity), and a lower degree of importance in preference which all increases the degree of increasing returns.

This is a note about Cheng et al's paper, in which we consider a dual structure of division of labor and trade in the model of Cheng et al that is missed by the authors. While the inclusion of the dual structure will not change major results in the paper of Cheng, et al., it explores an interesting way to use a general equilibrium model to describe a dual structure with underemployment in a transitional period of economic development.

We propose a Neo-Heckscher–Ohlin (HO) model of trade that combines comparative endowment advantage, comparative technological advantage, international capital mobility and trade costs. Using an inframarginal approach, we produce a partition of the exogenous parameter space in a host of parameter value subsets that demarcate the various equilibrium patterns of production and trade. The results are startling! They suggest that production within the diversification cone – a key assumption of the Heckscher–Ohlin theory that is required for its core propositions (such as factor price equalisation) to hold – may only prevail on the razor's edge, or under exceptional circumstances. In addition, our findings nominate a mechanism by which improvements in transaction efficiency facilitate international trade thereby stimulating cross-country division of labour. Contrary to other generalisations of the Heckscher–Ohlin (such as the various derivatives of the Kemp–Jones model of trade), our model does not assume a purely Ricardian character: comparative endowment advantage may determine the pattern of trade even in the presence of opposing technological differences, as long as total factor productivity coefficients adjusted for transaction efficiency and factor intensity do not confer unambiguous comparative (technological) advantage. Still, ‘intensity-efficiency’-adjusted comparative technological advantage supersedes factor endowments in determining the flow of trade. [ABSTRACT FROM AUTHOR]

The Smith dilemma refers to the inconsistency ("strictly an error") between the Smith theory on the efficiency of the market based on the absence of increasing returns and the Smith theorem on the facilitation of the economies of specialization (which gives rise to increasing returns) by the extent of the market. This paper argues that, despite the prevalence of increasing returns, Adam Smith was largely right on the efficiency of the invisible hand and hence that the Smith dilemma does not really exist. Ignoring separate issues such as environmental disruption, the market is very efficient in coordinating the allocation of resources even in the presence of increasing returns. The efficiency due to the automatic and incentive-compatible adjustments, free trade and enterprise (entry/exit) largely prevails. The Dixit–Stiglitz model shows that the free-entry market equilibrium coincides with the (non-negative profit) constrained optimum when the elasticity of substitution between products is constant. For non-constant elasticities, the divergences between the market equilibrium and the constrained optimum in output levels, in the numbers of firms and in utility levels are shown to be small.

This paper applies the inframarginal analysis, which is a combination of marginal and total cost-benefit analysis, to investigate the relationship between division of labor, the extent of the market, productivity and inequality of income distribution. The model with transaction costs and exogenous and endogenous comparative advantages shows that as trading efficiency is improved the general equilibrium discontinuously jumps from autarky to partial division of labor with a dual structure, then to the complete division of labor where dual structure disappears. In this process different groups of individuals with different trading efficiency become involved in a certain level of division of labor at different stages of development. As the leading group becomes involved in a higher level of division of labor leaving others behind, a dual structure emerges and inequality increases. As latecomers catch up dual structure disappears and inequality declines. When the leader goes to an even higher level of specialization, dual structure occurs and inequality increases again. Inequality decreases again as the latecomers catch up. Hence, the equilibrium degree of inequality fluctuates in this development process. The relationship between inequality and productivity is neither monotonically positive nor monotonically negative. It might not be an inverted U-curve. The key driving force of economic development and trade is improvement in trading efficiency.

The paper introduces differences in production and transaction conditions between countries into a model of monopolistic competition. It applies inframarginal analysis to show that, as transaction conditions are improved, the general equilibrium may jump discontinuously across different patterns of trade and economic development. A country may export a good in which it has exogenous comparative disadvantage if its endogenous comparative advantage dominates this disadvantage. Countries will choose a trade and development pattern to utilize their net exogenous and endogenous comparative advantages in production as well as in transactions.

The paper introduces differences in production and transaction conditions between countries into the model of monopolistic competition to investigate the interplay between trade policies and development strategies. It applies inframarginal analysis, which is total benefit analysis between corner solutions in addition to marginal analysis of each corner solution, to show that as transaction conditions are improved, the general equilibrium may discontinuously jump across different patterns of trade and economic development. It compares the marginal and inframarginal comparative statics of equilibrium in the model of monopolistic competition with the core theorems in the neoclassical trade models and with conventional wisdom in development economics. It shows that as analytical framework is altered, the meanings of concepts and related empirical observations will be changed too.

This paper develops two models to study the impact of trade in intermediate goods on wage inequality between skilled and unskilled labor in a developed country and a developing country. The first model assumes symmetric production technologies in the intermediate good. It predicts that trade in the intermediate good will increase wage inequality in the developed country, but decrease wage inequality in the developing country. The second model assumes asymmetric technologies in the intermediate good. It predicts that trade in the intermediate good can lead to an increase in wage inequality in both the developed country and the developing country.