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China

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, L504
Hosted By: Econometric Society
  • Chair: Panle Barwick, Cornell University

Fiscal Incentives and Firm Investment Dynamics: Structural Model Meets Quasi-random Experiments

Daniel Yi Xu
,
Duke University

Abstract

Canonical models of rm investment used in Macro and Productivity literature often rely on
a rich set of adjustment frictions. Previous quantitative studies illustrate that the adjustment
frictions are crucial to account for some of the salient features of the micro-level data, such as
the investment's lumpiness, serial correlation, and elasticity to productivity. However, most of
these studies focus on matching the data in a stationary environment. They seldom use the model
estimates to predict the rm-level changes in a quasi-random experiment. Meanwhile, with the
increasing availability of rm-level investment and tax data, there has been an emerging literature
that now quantify rm response to scal policy changes utilizing quasi-random variations in tax
regimes. Our paper aims to bridge these two approaches and provide a unied estimation framework
that embeds the information from both sides.

Privatization and Productivity in China

Yuyu Chen
,
Peking University
Mitsuru Igami
,
Yale University
Masayuki Sawada
,
Yale University
Mo Xiao
,
University of Arizona

Abstract

We study the impact of privatization in China, which has been credited for part of the country's productivity growth. Because privatization involves political processes, self-selection and unobserved heterogeneity create endogeneity problems, which we address by augmenting the nonparametric approach of Gandhi, Navarro, and Rivers (2016) to incorporate firms' ownership types and their endogenous changes. Results suggest the average short-run and long-run gains from privatization are 43% and 92%, respectively, and are larger in consumer-good industries than capital-good ones. By contrast, new-product surveys and patent statistics show state-owned enterprises outperform private firms, highlighting curious heterogeneity in the capabilities and/or incentives to innovate.

The Welfare Effects of Passenger Transportation Infrastructure: Evidence from China

Dave Donaldson
,
Massachusetts Institute of Technology
Panle Barwick
,
Cornell University
Shanjun Li
,
Cornell University
Yatang Lin
,
Hong Kong University of Science and Technology

Abstract

We develop an empirical framework to evaluate the welfare impacts of passenger transportation infrastructure and apply it to China’s High-Speed Railway (HSR) network, one of the largest infrastructure projects in the world. The framework is a three-layer CES model that characterizes transportation mode choices (the inner nest), consumption and trip choices (the middle nest), and spending across cities (the outer nest). We estimate the model parameters by leveraging the universe of Chinese consumers’ credit and debit card transactions with detailed information on travel costs across different modes of transportation over time. Our analysis shows that a direct HSR connection between two cities leads to a 35% increase in the number of bilateral trips and a 28% increase in bilateral transaction value. The model estimates imply that removing the entire HSR network would lead to a 4.5% reduction in welfare gains from out-of-city consumption and trips.

The Impact of Local Trade Barriers on Export Activities, Firm Performance, and Resource Misallocation

Jie Bai
,
Harvard University

Abstract

It is well known that various forms of non-tariff trade barriers can exist within a country. Empirically, it is difficult to measure these barriers as they can take many forms. This research takes advantage of an export VAT rebate policy reform in China in 2004 as a natural experiment to identify the existence of local trade barriers and study the impact on export activities and resource misallocation. In particular, as a result of shifting tax rebate burden, the 2004 reform leads to greater incentives of the provincial governments to block the domestic flow of non-local goods to local intermediaries for indirect exporting. We find that trade intermediaries become more “inward-looking” in the years after the reform, especially in province-industries with higher predicted rebate burden, consistent with rising protectionist incentives. The value of total exports and exports via intermediaries grow less in province-industries with greater exposure to the reform, measured using a province-industry’s baseline reliance on intermediaries interacted with the predicted rebate burden. We extend the standard open-economy heterogeneous firm model by adding an intermediary sector following Ahn, Khandelwal, and Wei (2011) but with a new focus on the intermediary’s role of domestic sourcing. The model can be used to recover the spatial distribution of wedges as a result of the rising local trade barriers and quantify the distortion on TFP.

China's Industrial Policy: An Empirical Evaluation

Panle Barwick
,
Cornell University
Myrto Kalouptsidi
,
Harvard University
Nahim Zahur
,
Cornell University

Abstract

China's Industrial Policy: An Empirical Evaluation
Panle Jia Barwick, Myrto Kalouptsidi, Nahim Zahur

Abstract: Industrial policies, broadly defined as policies to change a country's industry structure by promoting certain sectors, have recently reemerged in our newsfeed. For example, through a series of policies aimed at boosting “strategic” sectors during the 2000s, China became the world's largest producer in industries such as steel, solar panels, shipbuilding, and auto. Strikingly, however, this industrial takeover has been fragmented: unlike other countries, Chinese industries consist of a large number of small firms; at the same time, the aggregate industries suffer from much excess capacity, especially after the crisis of 2008. In response, the government is promoting consolidation policies to create “national champions”.

Although industrial policies have been present in the industrialization of many, if not all, countries, few empirical studies have directly evaluated their welfare consequences. In this paper we undertake this task, using shipbuilding as an illustrative example. We propose a simple model of firm production, capital accumulation, entry and exit, in the presence of government policies. Using a dataset that covers all shipyards worldwide, we estimate our model and then evaluate several features of the Chinese industrial policy.

Our estimates suggest that the combined policies amount to 300 billion RMB from 2006 to 2013. Subsidies boosted domestic investment by 300%, entry by 100%, and enhanced China’s world market share by 30%. Chinese shipyards’ aggregate profits increased by 144 billion RMB. Entry and investment subsidies are more inefficient than production subsidies in terms of generating profits and revenues, partly because entry and investment are irreversible and lead to more idleness and low capacity utilization during economic downturns. In addition, these policies depress world ship prices and prolong the recession of the shipbuilding industry for several years.
JEL Classifications
  • L5 - Regulation and Industrial Policy
  • F1 - Trade