PhDstuprofile

The Doctor of Philosophy (Ph.D.) in Economics Program

PhD students' profile (2009 to 2011)

	2009/10	2010/11	2011/12
Male, Female ratio	3 : 1	4 : 0	4:3
Average age at entry	25	25.5	25.2
Average GMAT score GRE score	GMAT: 665 GRE: 1150	GMAT: 760 GRE: 1330	GMAT: 640 GRE: 1270
Average TOFEL score	90.6	90.6	96
With Master's degree	3	4	6
Total number of students	4	4	7

Our Postgraduate Students are from: (in alphabetical order)

Beijing University,
Chinese University of Hong Kong,
Fudan University,
Hong Kong University of Science and Technology,
Huazhong University of Science and Technology,
Jilin University,
Nankai University,
Renmin University,
Tongji University,
Tsinghua University,
University of Hong Kong,
University of New South Wales, Australia
University of Science and Technology of China,
Xiamen University,
Zhongshan University

Our Postgraduate Students' Undergraduate Degrees:

Applied Mathematics
Computer Science
Economics
Economics and Investment
Electronic Engineering
International Accounting
International Business Management
International Economics
International Finance
Management Science

PhD Students' Thesis Abstract (Completed version)

2007

Incomplete Contracts and Corporate Governance: Theory and Evidence: Case Studies on Chinese Banking and US Franchising by CHEN Shaoling

This thesis applies the incomplete contract approach to studying the corporate governance in two cases: Chinese banking and U.S. franchising, both of which are issues of great significance from either academic or industrial perspective, but researches on them are still far from enough. First, a wave of centralizing control rights has been widely observed in Chinese banking recently. Based on a two-state incomplete contract model, we show that it’s actually a reaction to the following four facts—the opening up of the banking market, the reform of going public, the increasing serious financial frauds and the persistent high ratio of non-performing loans—which happen almost at the same time. Second, the mixed governance structure as well as the uniform and time-invariant linear contract in franchising also confuses many economists. This thesis establishes a two-period double-sided moral hazard model to study the dynamic decision making on governance structure and contracting of a franchise chain. Our results suggest that both resource scarcity theory and agency theory work but carry different weights in different stages along the whole life. Moreover, the accumulation of branding value brings helps remove the diversification of contracting across outlets as well as phases in the long run. Following this logic, we conduct an empirical analysis on the strategic interactions among franchise chains. Using data of 351 U.S. franchise chains from 43 sectors in 2005, we find significant evidence for spatial effects among franchise chains. Specifically, the coexistence of the complementary strategy in governance structure and the substituting strategy in contracting is consistent with the observed competition behavior and duopoly industrial structure in franchising.

Essays on Global Outsourcing and Innovation by YU Huayang

This dissertation "Essays on Global Outsourcing and Innovation" consists of three papers. The first and the second papers investigate two issues arising from global sourcing of multinational corporations. The third paper empirically studies whether U.S innovation is influenced by intellectual property rights protection in other countries.

Chapter one is "Cluster-based Economic Growth and Sourcing Behavior of Multinationals". The paper considers the relationship between global sourcing of multinational enterprises and agglomeration effect of industrial clusters by extending an intra-industry heterogeneity North-South trade model (embedded with property-rights approach). We assume that there is only one cluster in each industry in the South and in the North. The actual scale of a cluster (measured by the number of firms which produce manufacturing goods in the cluster) is determined by the investment or outsourcing choice of multinationals or final goods producers. We investigate respectively the industries of high headquarter intensity and the industries of low headquarter intensity.

In either case, multiple equilibria exist. When the headquarter intensity is very low, the multinationals do not produce intermediate goods internally. Normally firms with relatively low productivities find their suppliers in the North whereas firms with relatively high productivities outsource in the South. When the headquarter intensity is high enough, at most three organizational forms exist in equilibrium and no firms outsource in the South. Also, firms with low productivities will procure intermediate goods in the North, while firms which have high productivities will source the inputs from the South. In either case, we derive that in industries with higher wage rates, more varieties of goods are produced in the South, but not in the North. The reason is that the agglomeration effect of industrial clusters cancels out the effect of higher wage rates on production cost. Therefore, the development mode of cluster-based economic growth in the South is interpreted under our framework. Moreover, in the industries of low headquarter intensity, hollowing-out trend might take place; but in the industries of high headquarter intensity, more varieties of intermediate goods will still be produced in the North rather than in the South. Since the industrial scale of headquarter intensive sector in the South is not as large as that in the North, the paper suggests that high-tech industries of the South should be nurtured under self-reliance policy.

Chapter two is "Global Sourcing: Complete Contract and Imperfect Law Enforcement". It assumes that the contract between a multinational corporation and its outside intermediate supplier is complete, while law enforcement is imperfect when the multinational breach the contract. We investigate the sorting pattern of the organizational forms of multinationals with different productivity. The pattern is described respectively when the law enforcement probability in the South is rather low or much stronger. When the probability of law enforcement in the South is low, at most three organizational forms exist in equilibrium. Firms with lower productivity integrate vertically in the North or in the South, but firms having the highest productivity will outsource their input suppliers in the South. When the probability of law enforcement in the South is high, there are four types of organizational choice of the final-goods producers. Normally, firms with the lowest productivity make internally the intermediate goods in the North whereas firms with highest productivity outsource the intermediate inputs in the South.

Then we study the relative prevalence of different organizational modes. The fraction of firms choosing any particular organizational forms depends on the wage differential across countries, the degree of productivity dispersion in an industry, the probability of law enforcement in the South, the social penalty of breach of contracts, the headquarter intensity of the multinational corporation, the difference of fixed management costs and other factors. Specifically, weaker law enforcement in the South will attract more multinationals to source suppliers overseas and smaller social penalty has a similar effect on the choice of multinationals.

Chapter three is "Does IPR protection in Developing Countries Influence Technological Innovation in the U.S?" It uses patent data to empirically test the relationship between IPR protection in other countries and technological innovation in the U.S. The U.S government always urges developing countries to adopt a more stringent policy towards IPR protection. It often claims that weak protection in these countries would reduce the return of innovation of U.S companies and hamper their incentive towards innovation activity. This paper does a series of regressions and verifies that the U.S argument does not stand up.

We use the data of patent application in 1967-1999 filed in the USPTO (categorized by six technological sectors) to stand for innovation in U.S companies. Dummies are utilized to reflect the policy shift in IPR protection in other countries during this period. Control variables such as per capita GDP, human capital investment, and the dummies of the TRIPS agreement and the CAFC are also included. Moreover, economic linkage strength between the U.S and other countries are considered by using interaction terms in the econometric model.

The regression results do not support that the IPR reform in other countries have promoted innovation in the U.S. The setting up of the CAFC has not had obvious influence, either. We devise some robustness checks to challenge that conclusion. We examine the GDP effect, lagged response to IPR reform, and the effect of time trend etc, and find that the result is credible. However, this paper indicates that U.S innovation was facilitated through domestic policy transformation around the TRIPS which came into force in 1995.

Four Essays on Venture Capital by WANG Lanfang

This dissertation aims at contribution to the research on the field of corporate finance especially on the venture capital financing. This dissertation comprises of four essays.

The first essay sets up a theoretical model and makes a numerical analysis on why staged finance and convertibles always go hand in hand in corporate finance. By modeling a staged financing project with renegotiation, the use of convertible securities could obtain the second best and has the trend towards the first best solution.

The second essay gives empirical evidence of whether staged financing is an effective tool to deal with both risks and agency problems in venture capital financing, which is shown in most theoretical literature. To our surprise, staged financing is found to be almost exclusively a device for risk aversion. A lot of evidence of staged financing on alleviating risks but little evidence on coping with agency problems is found.

The third essay examines the rationale of syndication by testing three hypotheses: risk sharing, resource sharing and agency theory. This study pays extra attention to the role of entrepreneurs (ENs) during syndication and the bargaining power balance between venture capitalists (VCs) and ENs. It is shown that syndication is beneficial to both VCs and ENs for the purposes of risk sharing, resource sharing and potentially for alleviating agency problems.

The last essay is a survey on foreign VCs in China, which contribute a major part of venture capital investment in China. Through exploring the development history of Chinese venture capital industry, the difference between domestic and foreign VCs, and the investment structure of foreign VCs, we find that by using an offshore indirect investment structure, many effective mechanisms, which are popular in the west but unavailable or immature under Chinese law, such as staged financing, convertible securities, syndication, equity sharing and board representation, etc, can be widely used.

Semiparametric and Nonparametric Estimation of Tobit Mdoels by ZHOU, Xianbo

2005

Four Essays in Contracts and Industrial Organizations by LIU Jinhe

The dissertation consists of four chapters, covering respectively the topics on contract theories and industrial organizations. All papers, albeit diverse, fall taxonomically into the grand category of microeconomics.

Chapter 1, entitled "Outside Option Principle, Investment Specificities and Efficient Contract Design", discusses the optimal contract design problem between two parties in a framework in which alternating investments are made to implement a joint project. Investments by agents in joint project generally result in inefficiency when hold up problem is present. Investment inefficiency may be due either to the incompleteness inherent in most of contracts or to the agents' holdup behaviors incurred therefrom. This paper shows that in a non-repeat transaction framework, when the investment sequence in the static holdup model is relaxed, a dynamic sequential investment model in which one party makes an endogenous kickoff investment, may not only solve the holdup problem, but also help to break the IR failure constraint that may occur under the static sequential investment regime. Renegotiation arrangement, combined with the application of the outside option principle, can induce both parties to invest efficiently under the conditions when investments of both parties are independent or substitute at the margin. Furthermore, the result of the paper explains why the scheme of staged-financing has been widely used in venture capital industries, as observed in many empirical works in the literature.

Chapter 2, entitled "Endogenous Timing of Investment and Option Contract Credibility in Joint Ventures", studies the endogenous timing on the implementation of option contract that has been widely used in the partnership and joint venture industries. A number of papers had addressed the theoretical framework on the utilization of option contracts as instruments to improve the investment efficiency and to solve the holdup problems resulted from contractual incompleteness. However, there has been a discrepancy as to the efficacy of the option contract when it is exercised under different assumptions on the timing about the exercise date of the option contract. We show that, when time preference is a concern, credibility on the timing of the option contract is endogenously decided, without relying on the stronger assumption that renegotiation after expiry of the option contract could be credibly prohibited. In particular, our model gives the conditions for the credible implementation of an option contract with stipulated exercise date. Both time preference and the side payment ex ante will affect the bilateral investment timing for a given option contract. Dichotomously, to render credible the option contract, suitable ex ante surplus sharing should be endogenously reflected in the option contract; while for a given initial contract with stipulated option exercise price and date, the credibility of the option contract or investment path are endogenously determined. Links connecting option credibility and option contract design are determined. Ranges of feasible payment transfer in the initial contract to achieve the efficiency is endogenously determined, depending on the ex ante bargaining powers of the parties.

Chapter 3, entitled "Social Optimality, Externality and Contract Damage Remedies", discusses, in the domains of contract laws and contract theories, the effects of various rules of remedy on investment efficiencies when externality exists in a bilateral buyer-seller relationship. Existence of externality would alter the effectiveness of various damage remedy rules as employed in contract laws, such as rules of specific performance (SP), expected damage (ED) and reliance damage (RD), in inducing efficient reliance investments in bilateral buyer-seller relationship. Specifically, we show that specific performance rule and expected damage rule do not necessarily dominate one another when the buyer discounts on the resalable product. If different remedy rules are employed, product resalability will alter the status quo conditions of the parties when renegotiation is deemed to be necessary to improve ex post efficiency, which in turn will affect the reliance investment incentives ex ante. Effects of renegotiation on reliance investment and social welfare are studied under different remedy rules. Based on the extent of the resalability of the underlying product, the article gives guidance on optimal remedy rule choices to govern the contractual relationships under different trading scenarios.

Chapter 4, entitled "Effects of Piracy Market on Monopolistic Pricing Strategies", illustrates the effects of piracy market on the producer's pricing strategy and the social welfare in a framework in which the pirate, the producer and the heterogeneous consumers interact strategically. Price competition between the producer and the pirate is investigated in a two-period model to capture the idea of the preemptive power of the producer, in the sense that piracy activity generally lags the product marketing activity of the producer and renders the latter a temporary monopolistic power. Our findings show that, by introducing the preemptive power of the producer, the pirate will play an important leveraging role in reallocating between the consumers and the producer the social welfare surplus resulted from the entry of the pirate who only captures a relatively small portion of the surplus in comparison with that of the consumers and the producer, as partially justified by the empirical works in the literature. When the pirated product is a close substitute of the original one, the pirate would tend to lower the quality of the pirated product, thus lowering the valuation expectation of the consumers on the pirated product, even though the pirate possesses the capability or copying techniques to make it with higher quality. Moreover, when network externality exists in the market, the pirate will choose an optimal quality parameter, which is a decreasing function of the externality parameter. Effects of network externality on the choice of preventative measures by the producer are also discussed.

2004

Essays on Financial Crisis by MA Zihui

My thesis analyzes several important problems about financial crisis.

The first essay extends Diamond-Dybvig's model of bank runs in order to analyze some special phenomena observed during financial crises. By introducing imperfect competition, negative shocks and feedback effect, this model can explain a range of phenomena observed in recent financial crises that existing bank run models fail to explain. In this framework, the relationship between financial liberalization and financial crises is discussed, and some policy measures to prevent crisis are suggested.

The second essay studies the effects of financial crises on foreign trade both theoretically and empirically. The major findings are that banking crises had a negative impact on imports but a positive impact on exports in the short term, whereas currency crises decreased imports and increased exports in the long term.

The third essay investigates the spreading of financial crises through trade and financial linkages. Using a comprehensive data set for the period 1983- 1998, I examine whether there were spillover and contagion effects through different channels. Empirical results indicate that there were significant spillover effects through trade linkages and contagion effects via financial channels.

2003

Household Savings, Relationship Banking, and Urbanization: Three Essays in Economic Development and Finance by FAN Weiwei, David

The dissertation contains three chapters. They cover the topics of household savings in economic development, relationship in the industry of investment banking, and the impact of globalization on urbanization, respectively.

The first chapter, entitled " 'Keeping up with the Juniors'--- A Theory of Endogenous Savings in Economic Takeoff", provides a theoretical model trying to explain the noticeable and puzzling high household savings rates in rapidly growing economies such as China, Korea, Thailand, and Taiwan. The premise of the analysis is consumption externality of individuals' preferences, i.e., a person's preference for consumption in a period positively depends on that of an average consumer in the same period. Using an over-lapping generations model, the chapter shows that in a rapidly growing economy, under consumption externality, a consumer needs to save more in order to keep up with the consumption of the generation of his/her children (the juniors), since the young will earn more in the future and will consume more. Hence, in the steady state, the higher the growth rate, the higher the steady state savings rate. Also, a higher degree of the positive consumption externality will lead to a higher steady state savings rate.

The second chapter is also a theoretical one, entitled "Relationship in Investment Banking --- An Incomplete Contract Theory." The chapter explains the existence and persistence of relationship in investment banking from an incomplete contract perspective. It shows that ex ante a firm that may need financial service in the future chooses to optimally commit to dealing with a limited number of investment banks. This induces the related investment banks to make necessary ex ante investments in order to serve the firm better. Subsequently, the investment bank designs its compensation contract optimally so that bonus is a major component of total pay to its employees. The chapter explains a number of puzzling observations in the industry of investment banking.

The third chapter is an empirical study of the impact of GATT/WTO accession on urbanization. The title of it is "Does GATT/WTO Accession Accelerate Urbanization? --- Evidence from the World, 1960-1998." This chapter answers the question that whether and how GATT/WTO accession changes the pace of urbanization. Using a data set of 112 economies covering the years from 1960 to 1998, I showed that GATT/WTO accession had different impact on urbanization in high- and low-income economies. The rate of urbanization in high-income economies increased at a slower pace upon accession, while it had an extra annual increase in low-income economies upon accession. The slowing down of urbanization upon accession in high-income economies is found to be caused by less policy distortions due to enhanced openness and by decreasing shares of services industry in economic structure. On the other hand, the pouring-in of foreign investment due to the increased level of openness and the development of services industry after GATT/WTO accession in low-income economies were responsible for their speeding up urbanization pace.

Ownership, Privatization, and Banking Regulation: Four Essays in Economics of Transition and Development by LI Tao

The dissertation contains four essays. These essays investigate banking regulation around the world, corporate governance in mixed ownership companies, economic reform in transition economies, and state-owned enterprise (SOE) reform, respectively.

The first essay is entitled "Banking Regulation around the World: Patterns, Determinants and Impact". In this essay, we empirically investigate the patterns, determinants, and impact of banking regulation in a large cross-section of countries. Different countries deal with their commercial banks in different ways. Major differences are found to be in four dimensions, i.e., the extent of government ownership of banks, the intensity of direct regulation of banks, the measures used to empower outside investors to monitor banks, and the comprehensiveness of explicit deposit insurance. Based on these four dimensions, we identify three major different patterns of banking regulation around the world: the India-China type characterized by dominant government ownership, the South Africa-Philippines-Mexico type characterized by dominant use of government direct regulation, and the Germany-US-Switzerland-France type characterized by dominant use of government empowerment. Further, we test economic, legal, and cultural theories of the determinants of the patterns of banking regulation. Results indicate that the following countries exhibit larger fractions of government ownership of commercial banks: 1) countries with lower levels of initial banking development; 2) countries with Socialist and Civil law in legal origin; 3) countries with larger non-Protestant population. Countries with higher levels of economic or initial banking development, or with English Common law tradition have more independent and flexible regulatory agencies. Moreover, countries with higher levels of economic development or initial banking development impose less direct regulation, while relying more on government empowerment and explicit deposit insurance. Regressions show that the level of overall financial development is negatively correlated with the extent of government ownership and some specific measures of direct regulations of banks. Meanwhile, the level of overall financial development is positively associated with the flexibility of regulatory agencies, the empowerment of non-government stakeholders, and explicit deposit insurance schemes. Our findings imply a "big push" view of reforming banking regulation, i.e., a big push to economic and financial sector development will lead to subsequent improvements in banking regulation, which in turn will promote the country's economic and financial development.

The second essay is entitled "Corporate Governance of Mixed Ownership Firms in Transition: Evidence from China's Listed Companies". In this essay, we empirically examine corporate governance of mixed ownership firms where there coexist different ownerships in a company. It addresses the following questions: what is the impact of state ownership on the performance of mixed ownership enterprises in transition economies? Should state ownership be quickly reduced or kept at certain level in these firms? Utilizing a unique data set of mixed ownership firms listed in China's stock exchanges, we find significantly positive effect of state ownership in improving firm performance after initial public offering (IPO) when controlling for the government's downward self-selection bias. Government's downward self-selection bias means that in firms with poor performance before IPO, government as the dominant owner before IPO has to keep large stakes at the beginning of after-IPO period. Simultaneous equation analysis also shows state owners would like to reduce their shareholding fraction in those firms with worse performance after IPO, which confirms our endogenous state ownership assumption.

The third essay is entitled "A Public Finance Perspective on State-Owned Enterprise Reform". In this essay, we present a public finance theory to explain the relation between state-owned enterprise (SOE) reform and governments' public goods provision in transition economies. Given that the effective tax rate on the state sector is higher than that on the non-state sector during transition, governments need to rely more on the tax revenue from the state sector to finance their public goods provision at the cost of lower production efficiency of SOEs. We argue that both the optimal speed and intensity of state enterprise reform depend on the level of initial stock of public goods, and the efficiency of taxation on the non-state sector. The model shows that SOE reform will be carried out faster when the initial stock of public goods is larger or the efficiency of taxation on the non-state sector is higher. The theory also indicates that the government should lower tax rates on all enterprises when the initial stock of public goods is larger. Using the regional development disparity among Eastern, Central and Western China and the economic reform experience in the city of Wenzhou as examples, we illustrate the assumptions and findings of the theory. The study sheds light on the importance of the setup of an effective and efficient system of tax collection on the private sector in transition economies.

The fourth essay is entitled "Efficiency vs. Revenue: Discovering Governments' Incentives in Dumping State-Owned Enterprises". In this essay, we address the following question: what are the incentives of governments in privatizing or liquidating, i.e., dumping, state-owned enterprises (SOEs)? Existing research on privatization has not paid much attention to this question. The paper focuses on testing two alternative theories of the issue. One theory explains that governments dump SOEs in order to enhance production efficiency. The other theory argues that increasing government revenue or stopping subsidies to profit-losing SOEs is the motivation. Based on a data set from China, our tests reject the efficiency theory while yield support for the revenue theory. In addition, we find evidence that the concerns about unemployment are important obstacles of privatization or liquidation decisions. A simple implication is that it might be sensible to propose second-best privatization or liquidation programs that take government incentives into account and are feasible with the government rather than first-best programs that will never be implemented.

2000

The Impact of China's Accession into the World Trade Organization and the Agreement on Textiles and Clothing by MOK Siew Choy

This thesis analyzes the impact of the Agreement on Textiles and Clothing (ATC) and the accession of China and Taiwan to the World Trade Organization (WTO) by means of a computable general equilibrium model of world trade and production. The model modifies the Global Trade Analysis Project (GTAP) model to explicitly take into account re-export trade flows and the production of services by local and foreign firms in China. The model segregates all bilateral trade flows into direct trade and indirect trade (re-exports) as the latter plays an important role in the foreign trade of the China, Taiwan and Hong Kong. A re-export markup, representing the cost of trade services provided by the Hong Kong economy, is added to the price of re-exports. The supply of these services by the trade and transport sector in Hong Kong is also explicitly modeled.

The division of the services sectors in China into local versus foreign production is another innovation in the thesis. This facilitates the analysis of China's commitments to open its services sectors to foreign investment. Local and foreign services providers are modeled as direct competitors, each producing services that are substitutable for one another. The two groups also compete for factors of production.

The results show that the ATC together with the accession of China and Taiwan to the WTO will bring enormous gains to the world economy and alter the pattern of trade and specialization. The world, as a whole, stands to benefit from an increase in total welfare in year 2005 valued at US$35.6 billion when all of these agreements are fully implemented. The welfare gains, however, is uneven. The greater China area consisting of Mainland China, Taiwan and Hong Kong will get the largest share of the gains, amounting to $24.3 billion, while the rest of the world will gain $11.3 billion.

China has the most to gain from the WTO. Its welfare gains may potentially reach $19.5 billion or 3.5% of its GDP. China and Taiwan will succeed in procuring larger export markets through the WTO although the latter loses slightly from the ATC. China will strengthen its exports of labor-intensive goods while Taiwan will export more capital-intensive and knowledge-intensive goods. China will also gain substantially from a more liberal investment environment in services, which will create greater output and higher quality services in China. Hong Kong will benefit by facilitating a larger amount of trade between China, Taiwan and the rest of the world and by supplying China with intermediate goods necessary for production. These activities will bring Hong Kong a total gain of $2.7 billion despite the detrimental effects of the ATC.

Among the major trading partners of the Greater China Area, Japan will enjoy substantial gains from being the area's largest trading partner. It will take advantage of lower trade barriers to export capital and knowledge-intensive goods to the area.

The U.S. and EU will benefit mostly from the removal of MFA quotas and only slightly from China's and Taiwan's accession to the WTO due to the small expansion of their overall exports. Both regions will focus more on capital and knowledge-intensive goods with a corresponding shift out of labor-intensive goods.

The Southeast Asian Countries and the South Asian Sub-Continent will obtain moderate gains from the ATC and China and Taiwan's entry into the WTO. The elimination of the MFA quotas will exert the greatest influence on their exports, causing these countries to produce more textiles and clothing and less of all other products.

Overall the ATC and the accession of China and Taiwan to the WTO are expected to contribute significantly to world welfare and trade.

1998

On Forecasting the Hong Kong Economy with Bayesian Vector Autoregression Model by CHOW Wai Yip, William

This thesis evaluates various specifications of Bayesian Vector Autoregression (BVAR) and their implication on forecast accuracy with respect to Hong Kong data. In particular, I construct a Hierarchical Bayes model within the conventional BVAR framework using the Minnesota Prior. The design aims at bypassing the restriction of cross-equation independence of the coefficients and arbitrary fine- tuning of the hyperparameters in traditional BVARs. Estimation is facilitated by Markov Chain Monte Carlo methods because of the lack of analytical expressions for the solutions. The reduced form model so estimated is then "identified" into a structural counterpart that can offer meaningful economic interpretations. Empirical results from these exercises are consistent with the currency board system in general with monetary variables responding endogenously to shocks that hit the Hong Kong economy.

Essays on Hong Kong's Container Handling Industry by FUNG King Fai

A structural vector error correction model (VECM) of the container throughput volume of Hong Kong's container terminal is estimated to obtain both the long-run and contemporaneous relationships between it and the container throughput volume of midstream and Singapore container terminals. The resulting forecasts obtained from the structural VECM are then compared with those from a Bayesian vector autoregression (BVAR) model. A sensitivity analysis is conducted to determine how much the growth path of Kwai Chung's container throughput is affected by the growth rate of foreign trade and Shenzhen port's container throughput volume. Among others, I have found that in most cases both the structural VECM and the BVAR model produce higher growth paths than the forecast of the Hong Kong Port Development Board.

Statistical analysis has revealed that there has been a structural change in the profitability of shipping lines in 1990 and that the level of "terminal handling charges" (THC), i.e., fees set by shipping lines for moving container cargoes from the shore to ships, and the shipping lines' profitability were positively related. In addition, the empirical tests suggest that the demand for Hong Kong container handling services experienced a negative structural change since the introduction of THCs, and that it was negatively related to the level of THC. The above results can be explained by the increase in market power of shipping lines. Furthermore, by using the locational rent approach, I have found that the existing level of THC should be reduced by 53% on average in order to maximize Hong Kong's GDP.

The government has two instruments to affect the output decision of the terminal operators. One of which is the so-called "trigger point mechanism" (TPM) and the other is the number of terminal operators allowed to enter the market. The TPM triggers new terminals on the basis of the gap between forecast demand and existing terminals' container handling capacity. If forecast demand is formed with adaptive expectation, then the government may adjust the user cost of terminal's capacity and control the sensitivity of the "trigger" by changing the fraction of last period capacity shortfall that will be filled up by next period new capacity. By choosing the two parameters appropriately, the government can achieve the socially optimal solution under the TPM. The simulation exercise suggests that, if terminal operators engage in competition non-cooperatively, and under reasonable sensitivity of the "trigger" and user cost of capacity, the number of terminal operators that achieves the socially optimal solution is two.

[MSc program] ; [Department of Economics]