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)| false Dooley, M., Folkerts-Landau, D., Garber, P., 2004b, “ The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates and Exchange 29 Rates in Center Countries,” Working Paper 10332, National Bureau of Economic Research.
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A previous version of this paper circulated under the title “Blessings in Disguise: Surplus Labor and Excess Saving in China”.
International Monetary Fund, Washington DC, 20431, Said Business School, University of Oxford, Park End Street, Oxford, OX1 1HP, UK, and International Monetary Fund, Washington DC, 20431, respectively. We would like to thank Vivek Arora, Jahangir Aziz, Andrew Feltenstein, Tarhan Feyzioglu, Ron McKinnon, Alex Mourmouras and seminar participants at the IMF Institute and the Said Business School for helpful comments and suggestions. Any errors or omissions are our own.
This difficulty is underscored in Banister (2005) :
“The rural unemployed are completely ignored in the calculation. China’s unemployment rate is based on city data only. The figure used in the numerator for calculating the unemployment rate is the so-called “urban registered unemployment”. These are adults living in cities whose permanent population registration (hukou) is located in that city where they live, who are in the legal working ages, and who are formally registered as unemployed. “Urban registered unemployment” does not include laid-off workers who are still associated in any formal way with their former work unit, and does not include workers who have been forced to retire early and does not include in-migrants whose permanent population registration is outside that city. The denominator of the unemployment rate is the sum of employed workers in legal working ages whose permanent population registration is in the city where they live plus the urban registered unemployed.”
She also notes: “China’s NBS and Labor Ministry published a figure of 83 million manufacturing employees in China of whom 45 million were called rural and 38 million were classified as urban. But these data do not take full account of the 71 million town and village enterprises (TVE) manufacturing workers reported by the Ministry of Agriculture. On the basis of the assumption that the 38 million urban and 71 million TVE manufacturing employment categories are mutually exclusive the total manufacturing employment at year end 2002 was about 109 million. There is evidence that the official figure of 83 million manufacturing workers excludes millions of migrant manufacturing workers.”
See the Asian Development Bank key indicators for China.
The model we present in this paper predicts that China is a net recipient of capital flows. This appears to be at odds with the observed Chinese current account surplus. We do not however present a model of the current account but rather a model of the capital account — the flows of FDI, portfolio investment and debt — and predict correctly that China will receive more flows of these types than it will invest abroad. To fully characterize the current account, we would need a much richer model of saving and reserve accumulation. The model however, can be made technically consistent with the observation of a current account surplus. See the Appendix for details.
Note that this exercise does not allow us to make predictions about the relative sizes of employment and wage responses. The model simply predicts that labor mobility dampens the wage response.
To compute levels:
This “depreciation” assumption also insures that this accumulation tends to zero. If we do not assume some type of cost to asset accumulation, the level of this asset will tend to infinity. This is a well-known problem of small open economy models.