This thesis consists of four chapters. Each of the first three chapters is devoted to an empirical analysis of a certain facet of the economic development in China. The first chapter examines the relationship between city size distribution and economic growth using China provincial data from 1984 to 2005. A nonlinear relationship between the Zipf's coefficient, a measure of city size distribution, and the GDP growth rate is established to capture the idea that government intervention on labor migration distorts city size distribution and involves productivity losses. A deviation of the Zipf's coefficient from its equilibrium value has a negative impact on economic growth. The co-evolution of city size distribution and economic growth is illustrated with a vector autoregressive...[ Read more ]

This thesis consists of four chapters. Each of the first three chapters is devoted to an empirical analysis of a certain facet of the economic development in China. The first chapter examines the relationship between city size distribution and economic growth using China provincial data from 1984 to 2005. A nonlinear relationship between the Zipf's coefficient, a measure of city size distribution, and the GDP growth rate is established to capture the idea that government intervention on labor migration distorts city size distribution and involves productivity losses. A deviation of the Zipf's coefficient from its equilibrium value has a negative impact on economic growth. The co-evolution of city size distribution and economic growth is illustrated with a vector autoregressive model.

In the second chapter, I explore the extent of capital misallocation and consequent efficiency losses in the Chinese manufacturing sector, 1999-2007. I propose a new measure of capital misallocation that compares the extant distribution of capital stock to the efficient distribution that equates marginal revenue products of capital across firms. I find that capital is inefficiently allocated to large and old firms, state-owned firms, firms with low productivity, firms with capital-intensive technologies, firms that serve the domestic market only, and firms that are not financially constrained. I also find that the degree of capital misallocation at the industrial and provincial level can be explained by the share of state ownership, the degree of capital concentration, and the degree of government intervention, and the share of export value.

The third chapter observes a positive correlation between regional corruptness and the profitability of private firms and attributes it to the heavy-regulation nature of the Chinese economy. Private firms have to buy off regulators to evade legal restrictions and thereby make profit out of more flexible business operations, in which case corruption is efficiency-enhancing to a certain extent. This causal interpretation is lent credence to by analyzing a natural experiment of foreign trade policy change in China.

The final chapter switches the attention to the global economy and provides some new understanding of the nexus between fiscal policy and the current account. I adapt a multi-sector small open economy model (Ju and Wei, 2007, 2009) to the fiscal policy context and emphasize the role of labor market institutions. I find that the effect of the fiscal balance on the current account is negatively associated with a country's labor market flexibility. When labor regulations are very rigid, changes in the fiscal balance have a positive and large effect on changes in the current account. For a country with a flexible labor market, an improvement in the fiscal position actually worsens the current account balance.