Essays in unit root test and competitiveness : evidence from China and her textiles industry

Abstract

This thesis comprises four research chapters that examine the issues on economic trends, determinants contributing economic growth, and competitiveness of textile industries in China. Chapter 1 provides a schematic structure of this thesis and summarizes the motives, analytic methods, and empirical findings of the subsequent chapters. The first part of Chapter 2 reviews unit root test methodology in economic analyses. On these premises, I develop two new panel unit root tests, which are found to be more powerful in rejecting false I (1) time series as compared to the performance by univariate Augmented DickeyFuller (ADF) test and some of the conventional panel unit root tests. The finite sample performance of the two new panel unit root tests is verified using the Monte Carlo Simulation technique. The methodology purports to analyze the phenomena in China and Hong Kong textiles industry, which will further be articulated in part two of Chapter 2. The second part in this chapter uses the gravity model to estimate the trade elasticity of China's apparel cottons in the U.S. market for the period between 1989 and 2009. From the gravity model, two phenomena are observed. First, there exists a unique long-run equilibrium relationship among the import quantity demanded, the import price and the U.S. GDP per capita, and second, the import price and income elasticity are significant with expected signs, and those estimated parameters are essential for performing trade-policy analyses. Chapter 3 comprises macroeconomic discussions, generally divided into two parts. The first part focuses on the tradable goods and financial integration between China and her main trading partners from the empirical perspectives of real interest parity, uncovered interest parity and relative purchasing power parity. Using the two new panel unit root test I developed in Chapter 2, I confirm that tradable goods and financial integration between China and other trading partners are well established. In confirmation of the integration relationship, the second part examines the growth path dynamics and growth determinants in the Chinese economy using the provincial data. I examine the empirical validity of both beta and sigma unconditional income convergence across Chinese provinces from 1952 to 2005. Using both linear and non-linear panel unit root tests, I find that interprovincial inequalities have been widening since 1978 and such an observation is in line with Pedroni and Yao's (2006) findings. In addition, I examine the determinants of conditional income convergence in China and find that low inflation, better quality of human capital, improvement in transport and telecommunication infrastructures, and trade openness stimulate economic growth in China. Interestingly, the dynamic played by human capital is non-linear in the sense that the growth becomes negative when the human capital are at low levels and becomes positive when the levels are raised to the middle ones. Chapter 4 is composed of two interrelated studies in firm performance at the microeconomic aspect. The first study focuses on the investigation of interrelationships among firm-related characteristics, business environments and firms' performance in China using survey data obtained by the World Bank. The second one explores the key factors that determine Chinese firm competitiveness in the textile and apparel industries. In the first study, I use a panel data regression technique to identify factors that determine a firm's performance. The first observation is that being a State-Owned Enterprise has no bearing on a firm's performance; however, a firm's age and ownership status does. The second observation is that there exists a positive relationship between a firm's performance and its importation of machinery and equipment for production purposes. The third observation is linked to exporting firms. Literature shows that a firm's performance is linked to whether or not a firm is performing exporting activities; however, in my observation, this condition does not exist. Probably, this has been so because of a different approach I have taken to categorize the Work Bank data. In the second study, I conduct a survey designed to use productivity, supply-side and demand-side determinants to measure an enterprise's competitiveness and find that government policies and related industry infrastructures are the most important competitiveness determinants in the textile and apparel industries, followed by domestic demand.