Stodder: Financial Transition, July 1 Finance in Transitional and Developing Economies: China and Others Topics: Growth and Inequality in a ‘Dualistic’

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Presentation transcript:

Stodder: Financial Transition, July 1 Finance in Transitional and Developing Economies: China and Others Topics: Growth and Inequality in a ‘Dualistic’ Economy Growth and Inequality in a ‘Dualistic’ Economy Property Rights and Distribution Property Rights and Distribution Financial Depth vs. Breadth Financial Depth vs. Breadth

Stodder: Financial Transition, July 2 Surplus Labor in Agriculture: Marginal Product approaches 0

Stodder: Financial Transition, July 3 Gus Ranis: “Labor Surplus Economies”, Consumption Agricultural Production Non-Agricultural Production (transition) investment

Stodder: Financial Transition, July 4 The Dualistic Economy (Arthur Lewis, John Fei, Gustav Ranis) Qa = Agricultural Output Qa = Agricultural Output Qna = Non-Agricultural Output Qna = Non-Agricultural Output Wa = Agricultural Wage Wa = Agricultural Wage Wna = Non-Agricultural Wage Wna = Non-Agricultural Wage L = Labor, L = V + B L = Labor, L = V + B V = Agricultural Labor V = Agricultural Labor B = Non-Agricultural Labor B = Non-Agricultural Labor d = Demand for (Marginal Product of) d = Demand for (Marginal Product of) Non-Agricultural Labor Non-Agricultural Labor

Stodder: Financial Transition, July 5 Implications of Two-Sector Model: Agricultural and Industrial Wages Linked, kept flat by Surplus Labor. Agricultural and Industrial Wages Linked, kept flat by Surplus Labor. Wages can only rise strongly when Labor Surplus is used up. Wages can only rise strongly when Labor Surplus is used up. Non-Agricultural Profits grow much faster than Wages. Non-Agricultural Profits grow much faster than Wages.

Stodder: Financial Transition, July 6 Tied Wages, Japan

Stodder: Financial Transition, July 7 Tied Wages, Taiwan

Stodder: Financial Transition, July 8

9 Property Rights & Distribution East Asian Development successes linked with new broadly distributed forms of property rights. (South Korea, Taiwan, China, Vietnam) East Asian Development successes linked with new broadly distributed forms of property rights. (South Korea, Taiwan, China, Vietnam) These property rights land reforms achieve: These property rights land reforms achieve: Better matching of labor with land resources,Better matching of labor with land resources, Incentives for long term investment,Incentives for long term investment, More liquidity in the market for agricultural property.More liquidity in the market for agricultural property. Broader Distribution of Financial Assets is more complex, but may have even greater long term benefits for productivity and growth. Broader Distribution of Financial Assets is more complex, but may have even greater long term benefits for productivity and growth.

Stodder: Financial Transition, July 10 China’s Financial System: Deep but not Broad We will see that Financial Assets in China: We will see that Financial Assets in China: Have unusual depth, forming an unusually high portion of GDP, but Have unusual depth, forming an unusually high portion of GDP, but Lack the breadth associated with other Developing Economies, since they are narrowly confined to the Banking Sector. Lack the breadth associated with other Developing Economies, since they are narrowly confined to the Banking Sector.

Stodder: Financial Transition, July 11 Financial ‘Deepening’ Correlates with Higher GDP per capita

Stodder: Financial Transition, July 12 But China’s M2/GDP ratio is out of proportion to its GDP Figures for 1999/2000 CountryGDP per capitaM2/GDP(%) CHINA$2, Singapore$12, Korea, Rep. of$5, Malaysia$2, Thailand$1, Philippines$ Indonesia$ Sri Lanka$ India$ Pakistan$ Bangladesh$

Stodder: Financial Transition, July 13 M2 and Household Savings Very High Proportion of GDP

Stodder: Financial Transition, July 14

Stodder: Financial Transition, July 15

Stodder: Financial Transition, July 16 If Household Saving is ‘Bottled-up’ in Banks, May Pressure Excess Stock Speculation

Stodder: Financial Transition, July 17 Bank Dependency may also Weaken Response to Currency Crisis 0% 2% 4% 6% 8% -2% -4% -6% -8% tt+1t+2t+3t-1t-2t-3

Stodder: Financial Transition, July 18 Banking is State-Owned in China McKinsey Global Institute, China Capital Report, 2006

Stodder: Financial Transition, July 19 State Banks Tend to Loan to State Interests

Stodder: Financial Transition, July 20 Foreign & Private Enterprises More Efficient, Even in Similar Industries

Stodder: Financial Transition, July 21