Research on the Chinese and Asian Economies

Under the leadership of Professor Lawrence Lau, APARC continued in 2000-2001 to do research that examines the sources of economic growth in the East Asian region and puts forth policy recommendations based on project findings.

At present, several studies of the Asian economies are underway that focus on the sources of growth in both the region's developed and developing countries. Working in collaboration with Professor Michael Boskin of Stanford, Dr. Kim Jong-Il of Dongguk University, and Dr. Jung-Soo Park of the State University of New York, Buffalo, Professor Lau is running a project on productivity slowdown and the effect of labor market conditions on economic performance of developed countries, including Japan and the United States. Another study on Japan and the United States, in progress with Professors Yujiro Hayami of Aoyama Gakuin University and Yoshihisa Godo of Meiji Gakuin University, seeks to identify the transition from economic growth primarily driven by tangible inputs to growth driven by intangible factors like human and R&D capital and goodwill. Similarly, work is underway on the nature of growth in East Asia's developing countries. Professor Lau and his colleagues continue to research the reasons for the absence of measured technical progress or growth in total factor productivity among the region's developing economies. Working with Professor Kai-Sun Kwong of Hong Kong University and Dr. Jung-Soo Park, Lau is extending this exploration to include the manufacturing sectors of Hong Kong and the other newly industrializing economies.

International trade and investment issues are another focus of Professor Lau's study of the Asian regional economy. In April 1999, with Professor K.C. Fung of the University of Hong Kong and University of California, Santa Cruz, he completed a study, New Estimates of the United States-China Trade Balances, which concluded that the true 1998 bilateral trade balance between China and the United States was closer to $37 billion, rather than the $57 billion commonly used in the press. An earlier study, Retail Price Differentials between the United States and Japan, compared prices of specific American, Japanese, and European goods found in department stores in the United States and Japan. The research found that retail prices were systematically higher in Japan by a wide margin, regardless of the product's country of origin, even after controlling for tariffs and transportation costs. A monograph on U.S. foreign direct investment in China, in collaboration with Professor Fung and Professor Joseph Lee of the National Central University, Taiwan, is also in preparation.

The reform, transition, and long-term growth of the Chinese economy continue to be significant research interests of Professor Lau and his project members. A recent new direction of this research has been to analyze, with Professor Yingyi Qian of the University of Maryland and Professor Gerard Roland of the Free University of Brussels, the relative desirability of the dual-track approach to market reform adopted by Chinese policymakers, versus the "big bang" approach. Lau also continues to maintain and update an econometric model of the Chinese economy, a project on which he has been working for a number of years, and to develop an up-to-date economic database for China. The latter includes creating seasonally adjusted data which are currently unavailable, developing a set of leading indicators for the economy, and improving the measurement of consumer price indexes. This work is being carried out in collaboration with the State Statistical Bureau of China.

Other research recently undertaken by Professor Lau and his project members includes the causes and effects of the East Asian currency crisis and proposed remedies. A new project, on the potential and implications of a China-Japan free trade area, is also being planned.