Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China

Ge Song

doi:doi:10.11648/j.eco.20160503.11

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Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China

Ge Song

Published in Economics (Volume 5, Issue 3)

Received: 14 May 2016 Accepted: 30 May 2016 Published: 23 June 2016

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Abstract

This paper is based on a growth model that is consistent with salient features of the recent “New Normal” growth experience in China: slowdown of growth rate, low level of inflation and unemployment, decreasing returns on capital investment, extensive reallocation among agriculture, manufacturing and modern service sectors, rising share of consumption, improvement of wealth distribution, and reduced foreign surplus. The building blocks of the theory are asymmetric technology diffusions from FDI firms among various sectors and nominal wage rigidity in the labor market. Due to the asymmetric technology diffusion among different sectors, manufacturing firms enjoy a more rapid productivity progress via the process of learning by doing in a processing on order economy. Thus manufacturing sectors serve as the engine in the past years’ economic growth in China. Through the competition in labor market, trends of wage equalization drive the migration of residents from agriculture to manufacturing and modern service sectors. Moreover, with a larger share of processing on order firms, China tends to further enlarge her foreign surplus in a faster pace. However, the result of this paper shows that since the exchange rate reform on July 21^st 2005, RMB has appreciated accumulatively by 35%, combined with the wage rigidity in labor market, FDI firms in manufacturing sectors face an increasing level of cost in terms of increasing wage expenditure. Incumbent low profitable firms exit and potential entrants with new technology no more settle down. Thus, rapid productivity progress ceases in manufacturing sector. Not only the growth rate slows down, but also large number of unemployed population reallocates back to modern service and agriculture sectors. Dwindling share of manufacturing sectors reduced the foreign surplus by the drops of processing on order infra-firm trade of FDI firms.

Published in	Economics (Volume 5, Issue 3)
DOI	10.11648/j.eco.20160503.11
Page(s)	27-45
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Asymmetric Technology Diffusion, Nominal Wage Rigidity, Reallocation Among Sectors, “New Normal” in China

References

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APA Style

Ge Song. (2016). Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China. Economics, 5(3), 27-45. https://doi.org/10.11648/j.eco.20160503.11

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ACS Style

Ge Song. Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China. Economics. 2016, 5(3), 27-45. doi: 10.11648/j.eco.20160503.11

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AMA Style

Ge Song. Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China. Economics. 2016;5(3):27-45. doi: 10.11648/j.eco.20160503.11

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@article{10.11648/j.eco.20160503.11,
  author = {Ge Song},
  title = {Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China},
  journal = {Economics},
  volume = {5},
  number = {3},
  pages = {27-45},
  doi = {10.11648/j.eco.20160503.11},
  url = {https://doi.org/10.11648/j.eco.20160503.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20160503.11},
  abstract = {This paper is based on a growth model that is consistent with salient features of the recent “New Normal” growth experience in China: slowdown of growth rate, low level of inflation and unemployment, decreasing returns on capital investment, extensive reallocation among agriculture, manufacturing and modern service sectors, rising share of consumption, improvement of wealth distribution, and reduced foreign surplus. The building blocks of the theory are asymmetric technology diffusions from FDI firms among various sectors and nominal wage rigidity in the labor market. Due to the asymmetric technology diffusion among different sectors, manufacturing firms enjoy a more rapid productivity progress via the process of learning by doing in a processing on order economy. Thus manufacturing sectors serve as the engine in the past years’ economic growth in China. Through the competition in labor market, trends of wage equalization drive the migration of residents from agriculture to manufacturing and modern service sectors. Moreover, with a larger share of processing on order firms, China tends to further enlarge her foreign surplus in a faster pace. However, the result of this paper shows that since the exchange rate reform on July 21st 2005, RMB has appreciated accumulatively by 35%, combined with the wage rigidity in labor market, FDI firms in manufacturing sectors face an increasing level of cost in terms of increasing wage expenditure. Incumbent low profitable firms exit and potential entrants with new technology no more settle down. Thus, rapid productivity progress ceases in manufacturing sector. Not only the growth rate slows down, but also large number of unemployed population reallocates back to modern service and agriculture sectors. Dwindling share of manufacturing sectors reduced the foreign surplus by the drops of processing on order infra-firm trade of FDI firms.},
 year = {2016}
}

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TY  - JOUR
T1  - Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China
AU  - Ge Song
Y1  - 2016/06/23
PY  - 2016
N1  - https://doi.org/10.11648/j.eco.20160503.11
DO  - 10.11648/j.eco.20160503.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 27
EP  - 45
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20160503.11
AB  - This paper is based on a growth model that is consistent with salient features of the recent “New Normal” growth experience in China: slowdown of growth rate, low level of inflation and unemployment, decreasing returns on capital investment, extensive reallocation among agriculture, manufacturing and modern service sectors, rising share of consumption, improvement of wealth distribution, and reduced foreign surplus. The building blocks of the theory are asymmetric technology diffusions from FDI firms among various sectors and nominal wage rigidity in the labor market. Due to the asymmetric technology diffusion among different sectors, manufacturing firms enjoy a more rapid productivity progress via the process of learning by doing in a processing on order economy. Thus manufacturing sectors serve as the engine in the past years’ economic growth in China. Through the competition in labor market, trends of wage equalization drive the migration of residents from agriculture to manufacturing and modern service sectors. Moreover, with a larger share of processing on order firms, China tends to further enlarge her foreign surplus in a faster pace. However, the result of this paper shows that since the exchange rate reform on July 21st 2005, RMB has appreciated accumulatively by 35%, combined with the wage rigidity in labor market, FDI firms in manufacturing sectors face an increasing level of cost in terms of increasing wage expenditure. Incumbent low profitable firms exit and potential entrants with new technology no more settle down. Thus, rapid productivity progress ceases in manufacturing sector. Not only the growth rate slows down, but also large number of unemployed population reallocates back to modern service and agriculture sectors. Dwindling share of manufacturing sectors reduced the foreign surplus by the drops of processing on order infra-firm trade of FDI firms.
VL  - 5
IS  - 3
ER  -

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Author Information

Ge Song

School of Economics, Fudan University, Shanghai, P. R. China

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Plain Text BibTeX RIS

APA Style

Ge Song. (2016). Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China. Economics, 5(3), 27-45. https://doi.org/10.11648/j.eco.20160503.11

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ACS Style

Ge Song. Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China. Economics. 2016, 5(3), 27-45. doi: 10.11648/j.eco.20160503.11

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AMA Style

Ge Song. Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China. Economics. 2016;5(3):27-45. doi: 10.11648/j.eco.20160503.11

Copy | Download

@article{10.11648/j.eco.20160503.11,
  author = {Ge Song},
  title = {Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China},
  journal = {Economics},
  volume = {5},
  number = {3},
  pages = {27-45},
  doi = {10.11648/j.eco.20160503.11},
  url = {https://doi.org/10.11648/j.eco.20160503.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20160503.11},
  abstract = {This paper is based on a growth model that is consistent with salient features of the recent “New Normal” growth experience in China: slowdown of growth rate, low level of inflation and unemployment, decreasing returns on capital investment, extensive reallocation among agriculture, manufacturing and modern service sectors, rising share of consumption, improvement of wealth distribution, and reduced foreign surplus. The building blocks of the theory are asymmetric technology diffusions from FDI firms among various sectors and nominal wage rigidity in the labor market. Due to the asymmetric technology diffusion among different sectors, manufacturing firms enjoy a more rapid productivity progress via the process of learning by doing in a processing on order economy. Thus manufacturing sectors serve as the engine in the past years’ economic growth in China. Through the competition in labor market, trends of wage equalization drive the migration of residents from agriculture to manufacturing and modern service sectors. Moreover, with a larger share of processing on order firms, China tends to further enlarge her foreign surplus in a faster pace. However, the result of this paper shows that since the exchange rate reform on July 21st 2005, RMB has appreciated accumulatively by 35%, combined with the wage rigidity in labor market, FDI firms in manufacturing sectors face an increasing level of cost in terms of increasing wage expenditure. Incumbent low profitable firms exit and potential entrants with new technology no more settle down. Thus, rapid productivity progress ceases in manufacturing sector. Not only the growth rate slows down, but also large number of unemployed population reallocates back to modern service and agriculture sectors. Dwindling share of manufacturing sectors reduced the foreign surplus by the drops of processing on order infra-firm trade of FDI firms.},
 year = {2016}
}

Copy | Download

TY  - JOUR
T1  - Asymmetric Technology Diffusion, Nominal Wage Rigidity, and the “New Normal” in China
AU  - Ge Song
Y1  - 2016/06/23
PY  - 2016
N1  - https://doi.org/10.11648/j.eco.20160503.11
DO  - 10.11648/j.eco.20160503.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 27
EP  - 45
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20160503.11
AB  - This paper is based on a growth model that is consistent with salient features of the recent “New Normal” growth experience in China: slowdown of growth rate, low level of inflation and unemployment, decreasing returns on capital investment, extensive reallocation among agriculture, manufacturing and modern service sectors, rising share of consumption, improvement of wealth distribution, and reduced foreign surplus. The building blocks of the theory are asymmetric technology diffusions from FDI firms among various sectors and nominal wage rigidity in the labor market. Due to the asymmetric technology diffusion among different sectors, manufacturing firms enjoy a more rapid productivity progress via the process of learning by doing in a processing on order economy. Thus manufacturing sectors serve as the engine in the past years’ economic growth in China. Through the competition in labor market, trends of wage equalization drive the migration of residents from agriculture to manufacturing and modern service sectors. Moreover, with a larger share of processing on order firms, China tends to further enlarge her foreign surplus in a faster pace. However, the result of this paper shows that since the exchange rate reform on July 21st 2005, RMB has appreciated accumulatively by 35%, combined with the wage rigidity in labor market, FDI firms in manufacturing sectors face an increasing level of cost in terms of increasing wage expenditure. Incumbent low profitable firms exit and potential entrants with new technology no more settle down. Thus, rapid productivity progress ceases in manufacturing sector. Not only the growth rate slows down, but also large number of unemployed population reallocates back to modern service and agriculture sectors. Dwindling share of manufacturing sectors reduced the foreign surplus by the drops of processing on order infra-firm trade of FDI firms.
VL  - 5
IS  - 3
ER  -

Copy | Download