John Knight

• Professor Emeritus at University of Oxford

Adam Smith argued that ‘moral sentiments’ – the norms, customs and conventions of society - provide a benefit, improving both economic efficiency and well-being. Three important moral sentiments are a perception of fairness, a willingness to trust people, and a sense of community. We analyse representative national socioeconomic surveys of the Chin...

The effect of inequality on happiness should intrigue social scientists. Of the many dimensions of income inequality, we explore four, analysing a rich data set for China. Does actual or perceived inequality have a greater effect on happiness? We find that perceptions of inequality are the more important. How broad is the reference group with which...

The inequality of wealth in China has increased rapidly in recent years. China presents a fascinating case study of how inequality of household wealth increases as economic reform takes place. Wealth inequality and its growth are measured and decomposed using data from two national sample surveys of the China Household Income Project (CHIP) relatin...

The paper compares the economic progress of two countries, South Africa and China, in relation to the Lewis model. These economies are chosen because they have interesting similarities and also interesting differences. At the start of economic reform in China and with the advent of democracy in South Africa, both countries had surplus labour: they...

The inequality of wealth in China has increased rapidly in recent years. Prior to 1978 all Chinese households possessed negligible wealth. China therefore presents a fascinating case study of how inequality of household wealth increases with economic reforms, marketization, and capital accumulation. Wealth inequality and its growth are measured and...

This paper addresses an interesting phenomenon in China’s investment pattern: despite high aggregate investment and remarkable economic growth, negative investment is commonly found at the microeconomic level. Using a large firm-level data set mainly made up of unlisted companies, we show that private firms undertake negative investment in order to...

The paper contrasts early theories of the utility function (starting with Bentham and elaborated by Jevons) with the modern theory (laid down by Fisher and Samuelson). The former include in the utility function not only the sensation of current events but also the memory of past events and the anticipation of future events, whereas the latter treat...

The paper questions the normative value in the Chinese case of standard measures of aggregate income inequality such as the Gini coefficient. Evidence is adduced that people have narrow frames of reference and that they distinguish between income inequalities that they perceive to be fair and those that they perceive to be unfair. It is suggested t...

China’s inequality is evolving. This paper brings the story up to date, drawing on recent research, much of it by the author. It begins with a brief account of rising inequality, and its causes, over the period of economic reform. It then examines the fall in the inequality of income in recent years and the reasons for this reversal of trend. Inequ...

In the decade 1998–2008 China expanded enrolment in higher education almost six-fold. For the examination of its short term labour market consequences, this unprecedentedly huge and sudden policy change might be regarded as a natural experiment. After providing a theoretical framework for analysis, the paper uses urban labour market surveys to anal...

In China, political control is centralized and economic management is decentralized. This gives rise to a serious principal-agent problem, in which the agents are often better informed than the principal. China also has a semi-marketized economy involving much state intervention. This intervention serves both a political and an economic function. I...

The paper examines the notion of a ‘developmental state’ and shows that China possesses the relevant characteristics. It explains the political economy which generated such a state in China. It analyses the institutions and methods that were introduced to create a developmental state, in particular the incentive structures that the leadership used...

China's leaders have often expressed concerns about social instability, viewed as a threat both to the political order and to continued rapid growth. Slower growth might, in turn, further undermine social stability. Using survey data, the present paper examines the economic determinants of social instability. Four main determinants are identified:...

This paper provides a survey of the economic literature relevant to social instability in China and moulds it into an argument. The objective is to offer a fresh view of economic policy and performance through the lens of the threat posed by social instability. This is a concept that economists rarely analyse, and yet it can lurk behind much econom...

This paper provides an overview of research on income inequality in China over the period of economic reform. It presents the results of two main sources of evidence on income inequality and, assisted by various decompositions, explains the reasons income inequality has increased rapidly and the Gini coefficient is now almost 0.5. This paper evalua...

In 1974, Richard A. Easterlin, a coauthor of the work by Easterlin et al. (1) in PNAS, published a seminal article (2) that has generated a huge literature. It sought to explain why the happiness score in the United States (and elsewhere) had stayed roughly constant, whereas income per capita had trended up. This evidence has come to be known as th...

This paper addresses the hotly-debated question: do Chinese firms overinvest? A firm-level dataset of 100,000 firms over the period of 2000-07 is employed for this purpose. We initially calculate measures of investment efficiency, which is typically negatively associated with overinvestment. Despite wide disparities across various ownership groups,...

How has the Chinese economy managed to grow at such a remarkable rate - no less than ten per cent per annum - for over three decades? This well-integrated book combines economic theory, empirical estimation, and institutional analysis to address one of the most important questions facing contemporary economists. A common thread that runs throughout...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...

A specially designed household survey for rural China is used to analyse the determinants of aspirations for income, proxied by reported minimum income need, and the determinants of subjective well-being, both satisfaction with life and satisfaction with income. It is found that aspiration income is a positive function of actual income and referenc...

This paper attempts to address a puzzle in China’s investment pattern: despite high aggregate investment and remarkable economic growth, negative net investment is commonly found at the microeconomic level. Using a large firm-level dataset, we test three hypotheses to explain the existence and extent of negative investment in each ownership group:...

To what extent is economic welfare determined by objective conditions and to what extent by aspirations and the degree to which they adapt to objective conditions? This question – relevant to many normative issues in economics – has been addressed by both economists and psychologists but with different answers. Easterlin (2006) contrasts economists...

The paper examines the contentious issue of the extent of surplus labour that remains in China. China was an extreme example of a surplus labour economy, but the rapid economic growth during the period of economic reform requires a reassessment of whether the second stage of the Lewis model has been reached or is imminent. The literature is inconcl...

In recent years China has experienced two forms of extreme macroeconomic imbalance: an expenditure imbalance in the sense of very high investment and very low consumption, giving rise to rapid capital accumulation; and an imbalance between expenditure and production, producing external imbalance, i.e. a huge surplus on the current account of the ba...

We use a panel of over 116,000 Chinese firms of different ownership types over the period 2000-2007 to analyze the linkages between investment in fixed and working capital and financing constraints. We find that those firms characterized by high working capital display high sensitivities of investment in working capital to cash flow (WKS) and low s...

Cross-province growth regressions for China are estimated for the reform period. Two research questions are asked. Can the regressions help us to understand why China as a whole has grown so fast? What types of investment matter for China's growth? We address the problem of model uncertainty by adopting two approaches to model selection to consider...

Various measures of satisfaction with life or happiness in China appear not to have risen in recent years, despite China's remarkable growth of income per capita. The paper brings together and integrates the results of four papers by the authors to provide a methodologically and substantively innovative explanation for this paradox. The four papers...

This book, a sequel to Inequality and Public Policy in China (2008), examines the evolution of inequality in China from 2002 to 2007, a period when the new 'harmonious society' development strategy was adopted under Hu Jintao and Wen Jiabao. It fills a gap in knowledge about the outcomes of this development strategy for equity and inequality. Drawi...

Introduction The intergenerational distribution of education has received less attention from economists than has the intragenerational distribution. Yet, the degree of intergenerational transmission of education – the transfer of educational outcomes from parents to children – is an important determinant of the distribution of education among hous...

Why is it that couples who have a son or whose last child is a son earn higher conditional income? To solve this curious case we tell a detective story: evidence of a phenomenon to be explained, a parade of suspects, a process of elimination from the enquiry, and then the denouement. Given the draconian family planning policy and a common perceptio...

China has had a remarkably high ratio of investment to output ever since economic reform began in 1978, surpassing almost all other economies. This is an important proximate determinant of China's high growth rate. This paper gathers together the available evidence to explain why investment is so high: factors both on the demand and on the supply s...

This is an ambitious attempt to view the relationships involving education and income as forming a system, and one that can generate a poverty trap. The setting is rural China, and the data are from a national household survey for 2002, designed with research hypotheses in mind. The paper shows how and why the returns to education vary according to...

The paper presents subjective well-being functions for urban and rural China, based on a national household survey for 2002. Whereas the vast income disparity between urban and rural households is confirmed, it is found that, remarkably, rural households report higher subjective well-being than do their richer urban counterparts. A decomposition an...

Summary This paper is among the first to link the literatures on migration and on subjective well-being in developing countries. It poses the question: why do rural-urban migrant households settled in urban China have an average happiness score lower than rural households? Three basic hypotheses are examined: migrants had false expectations about t...

The Lewis model (Lewis 1954) provides a good framework for explaining the ways in which the fruits of economic development are spread. Within a competitive market system, it is only when the economy emerges from the first, labour-surplus, classical stage of the development process and enters the second, labour-scarce, neoclassical stage that real i...

In the period prior to urban economic reform, China had no labour market. Instead, from the 1950s to 1980s, it had a system of wage administration and labour allocation. This system gave the state — essentially the Chinese Communist Party (CCP) — great powers to pursue its various objectives, including the relentless pursuit of urban industrializat...

Introduction China, the WTO and the Doha Agenda China and Regional Integration Balance or Imbalance of China's Economy versus the World Has China Displaced Other Asian Countries' Exports? China, Commodity Prices and the Terms of Trade Inward and Outward FDI in China Outsourcing to China FDI in China: Facts and Impacts on China and the World Economy...

A national household survey for 2002, containing a specially designed module on subjective well-being, is used to estimate pioneering happiness functions in rural China. The variables that are predicted by economic theory to be important for happiness prove to be relatively unimportant. Our analysis suggests that we need to draw on psychology and s...

Together with a companion paper to be published in the March 2010 issue, this is an ambitious attempt to view the relationships involving education and income as forming a system, and one that can generate a poverty trap. The setting is rural China, and the data are from a national household survey for 2002, designed with research hypotheses in min...

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This chapter examines unemployment trends since the time of the democratization of South Africa. It argues that the rise in unemployment is best explained by the rapid growth in the labour force relative to the growth of formal sector employment, as a result of which the burgeoning residual labour force was absorbed either into the informal sector,...

The paper uses an appropriate survey from rural China to answer the question: is happiness infectious, i.e. does the happiness of an individual depend positively on the happiness of his or her reference group? The evidence is consistent with this hypothesis, but the challenge is to solve the ‘reflection problem’, i.e. is the apparent effect of neig...

In China, urban residents have traditionally been protected against labour market competition from rural–urban migrants. Over the period of urban economic reform, rural–urban migration was allowed to increase in order to fill the employment gap as growth of labour demand outstripped that of the resident labour force in urban areas. However, as refo...

Introduction: Since the mid-1990s the pace of economic reform in China's urban labor market has accelerated. One contributing factor was the draconian labor retrenchment program in the state sector: Many previously secure workers were thus thrown into a new labor market. Another contributing factor was the corporatization or privatization of much o...

China's economy grew at an average annual rate of 9% over the last three decades. Despite the vast empirical literature on testing the neoclassical model of economic growth using data on various groups of countries, very few cross-country regressions include China and none of them particularly focuses on the explanation of China's remarkable econom...

This paper provides a survey of the literature on inequality in China level, change, causes, and consequences. It attempts to answer six main questions. How much has inequality risen? What is its relation to poverty alleviation? What has happened to wealth inequality? What are the main dimensions of rising income inequality? The dimensions examined...

Social capital is considered to play an economic role in labour markets. It may be particularly pertinent in one that is in transition from an administered to a market-oriented system. One factor that may determine success in the underdeveloped Chinese labour market is thus "guanxi", the Chinese variant of social capital. With individual-level meas...

In this paper we attempt to explore some indirect determinants of China’s growth success including the degree of openness, institutional change and sectoral change, based on a cross-province dataset. The methodology we adopt is the informal growth regression, which permits the introduction of some explanatory variables that represent the underlying...

Why is it that couples who have a son or whose last child is a son earn higher conditional income? To solve this curious case we tell a detective story: evidence of a phenomenon to be explained, a parade of suspects, a process of elimination from the enquiry, and then the denouement. Given the draconian family planning policy and a common perceptio...

China is not merely growing at double the rate of the European countries during the Industrial Revolution, it is also urbanising at double the speed. Using a unique dataset of rural-to-urban migrants in 15 major Chinese cities, we give preliminary answers to some of the most pressing policy questions: how many migrants are there and what are their...

China is not merely growing at double the rate of the European countries during the Industrial Revolution, it is also urbanising at double the speed. Using a unique dataset of rural-to-urban migrants in 15 major Chinese cities, we give preliminary answers to some of the most pressing policy questions: how many migrants are there and what are their...

The paper uses the Lewis model as a framework for examining the labour market progress of two labour-abundant countries, China and South Africa, towards labour shortage and generally rising labour real incomes. In the acuteness of their rural-urban divides, forms of migrant labour, rapid rural-urban migration, and high and rising real wages in the...

This paper examines an issue of overwhelming importance in South Africa--unemployment and its rise. It explains the factors behind the sharp rise in unemployment in the post-apartheid period, investigates the role of labour legislation and the system of labour market governance, evaluates the impact of the government's active labour market policies...

This is an ambitious attempt to view the relationships involving education and income as forming a system, and one that can generate a poverty trap. The setting is rural China, and the data are from a national household survey for 2002, designed with research hypotheses in mind.Enrolment is high in rural China by comparison with most poor rural soc...

Schooling has externality effects in agriculture when, in the course of conducting their own private economic activities, educated farmers raise the productivity of their uneducated neighbours. This paper seeks to determine the potential size and source of such benefits for rural areas of Ethiopia, where school enrolment is low and the private retu...

The recent draconian program of labor retrenchment in China caused widespread unemployment. Many of the retrenched workers remained unemployed for a long time. How did the duration of their unemployment affect their re-employment earnings? The possible relationships between unemployment duration and subsequent wages are modelled heuristically, four...

Radical economic reform and rapid marketization in the late 1990s could be expected to create new poverty and insecurity in Chinese cities. Accordingly, the extent and nature of poverty in urban China is examined by means of a 1999 cross-section household survey. Three types of poverty-"income and consumption", "income not consumption" and "consump...

Are jobless persons who want work but are not actively searching, unemployed or out of the labour force? Previous research on this issue has focused on North America and used as the test whether the probability of transition to employment is similar for searching and non-searching jobless persons. This paper develops three new tests as to whether t...

The conventional approach of economists to the measurement of poverty is to use measures of income or consumption. This has been challenged by those who favour broader criteria, such as fulfilment of 'basic needs' and the 'capabilities' to be and to do things of intrinsic worth. This paper asks: to what extent are these different concepts measurabl...

Rapid economic growth and radical structural transformation pose a challenge to official statisticians as they seek to encompass new economic activities and phenomena. The accuracy of official statistics is liable to come into question. Urban unemployment in China is a good example. This paper estimates the urban unemployment rate using administrat...

Boys are more likely than girls to attend school in rural China. There is evidence that gender equity is a “luxury good”; the demand for female schooling is more income elastic than that for male schooling. Maternal education generally has a stronger effect on primary school enrollment and on educational expenditure than paternal education does. Ho...

It is commonly claimed that the South African labor market is unusually inflexible owing to the strength of the country's unions and the system of centralized collective bargaining. One sign of labor market inflexibility is low responsiveness of wages to local unemployment. Analyzing data from the South African Living Standards Survey, the authors...

Two representative surveys, relating to 1995 and 1999, are used to analyse the effect of enterprise profitability on wages in urban China. The labor market is still at a rudimentary stage and job mobility remains low, so that wage differences across firms are not necessarily ironed out by labor market competition. There is evidence that, standardis...

Abstract: The conventional approach of economists to the measurement of poverty in poor countries is to use measures of income or consumption. This has been challenged by those who favour broader criteria for poverty and its avoidance. These include the fulfilment of ‘basic needs’, the ‘capabilities’ to be and to do things of intrinsic worth, and s...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...

This book presents a compilation of studies on China’s labour market. These explore institutional and political constraints on the operation of the market, and their changes over time. The book is divided into four parts. Part I studies the Chinese labour and wage system under the planned economy, labour market reforms, their evolution, and their c...