Causes of and Remedies for the Peopleâ€™s Republic of Chinaâ€™s External Imbalances : The Role of Factor Market Distortion
AbstractThe current account surplus of the Peopleâ€™s Republic of China (PRC) has drawn much foreign and domestic attention. This paper focuses on the reasons and remedies for the PRCâ€™s current account surpluses. Rather than deploying the standard explanations, we argue that asymmetric market liberalization and the related factor market distortion is the root reason for the PRCâ€™s external imbalances. These cost distortions have artificially lowered PRC production costs, raised profits, and improved their productsâ€™ international competitiveness which has not only stimulated the economy, but also brought about severe structural risks. We completed a crude estimation for factor cost distortions in the PRC during 2000â€“2009 which matched its current account surpluses quite well. In order to rebalance the economy, we recommend that the PRC should adopt a comprehensive reform package focusing on removing the factor market distortions.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 23257.
Date of creation: Apr 2011
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External Imbalances; PRC; Factor Market Distortion; current account surpluses; asymmetric market liberalization;
Other versions of this item:
- Yiping Huang & Kunyu Tao, 2011. "Causes of and Remedies for the Peopleâ€™s Republic of Chinaâ€™s External Imbalances : The Role of Factor Market Distortion," Macroeconomics Working Papers 23257, East Asian Bureau of Economic Research.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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