Investment and financing constraints in China: does working capital management make a difference?

We use a panel of over 120,000 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 sensitivities of investment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKS and WKS measures and find that, despite severe external financing constraints, those firms with low FKS and high WKS exhibit the highest fixed investment rates. This suggests that good working capital management may help firms to alleviate the effects of financing constraints on fixed investment.

(Don’t) Make My Vote Count

Proponents of proportional electoral rules often argue that majority rule depresses turnout and may lower welfare due to the 'tyranny of the majority' problem. The present paper studies the impact of electoral rules on turnout and social welfare. We analyze a model of instrumental voting where citizens have private information over their individual cost of voting and over the alternative they prefer. The electoral rule used to select the winning alternative is a combination of majority rule and proportional rule. Results show that the above arguments against majority rule do not hold in this set up. Social welfare and turnout increase with the weight that the electoral rule gives to majority rule when the electorate is expected to be split, and they are independent of the electoral rule employed when the expected size of the minority group tends to zero. However, more proportional rules can increase turnout within the minority group. This effect is stronger the smaller the minority group. We then conclude that majority rule fosters overall turnout and increases social welfare, whereas proportional rule fosters the participation of minorities.

Nearer to Sraffa than Marx: Adam Smith on Productive and Unproductive Labour

This paper supercedes an earlier attempt I made to pin down the meaning and significance of Adam Smith’s theory of productive and unproductive labour. (Strathclyde Discussion Papers in Economics, No.08-05) My conclusion then was that while Smith’s understanding of what was needed to achieve economic growth was sound, his discussion was marred by apparently conflicting definitions of productive labour. That (essentially conventional) interpretation does not, I now believe, do justice to Smith. Revision is therefore called for: hence the present paper.