Raymond Fisman, Columbia University and NBER; and Yongxiang Wang, Columbia University
Corruption in State Asset Sales
Fisman and Wang document the under-pricing of state asset sales in China. Because these sales involved stakes in partially privatized firms, there is a credible benchmark - the price of publicly traded shares - to measure the extent and correlates of under-pricing. Share sales of "dehat owners" - firms that misrepresent their state ownership status to elude regulatory scrutiny - are discounted 5-10 percentage points more than sales by other types of owners. The authors observe similar discounts for sales involving related party transactions. State asset sales have a positive effect on post-transfer performance based on the event-study evidence and on changes in the returns on assets. However, these improvements are weaker among "dehat" sellers, highlighting the dependence of privatization outcomes on post-transfer ownership.
Yi Lu, University of Hong Kong;Ivan Png, National University of Singapore; and Zhigang Tao, University of Hong Kong
Do institutions not matter in China? Evidence from manufacturing enterprises
Lu, Png, and Tao address the apparent puzzle that China achieved spectacular economic performance despite weak institutions. From a World Bank survey of 1,566 manufacturing enterprises in 18 Chinese cities, they investigate whether property rights protection mattered for enterprise performance. They fund that property rights protection had a positive and statistically significant impact on enterprise productivity. Other estimation methods further establish the causal impact of property rights protection on enterprise productivity. These findings are robust to various controls, outliers, and alternative measures of productivity and property rights protection.
Joseph Fan, Chinese University of Hong Kong; Jun Huang, Shanghai University of Finance & Economics; Felix Oberholzer-Gee, Harvard University and NBER; and Mengxin Zhao, University of Alberta
Bureaucrats as Managers - Evidence from China
Former civil servants lead a large number of companies in both developed and emerging economies. Fan, Huang, Oberholzer-Gee, and Zhao ask whether these managers make effective chief executives. The researchers examine strategic choices and the financial performance of publicly listed companies in China during 2001 to 2005. Their results indicate that the bureaucratic past of CEOs has a profound influence on company strategy and financial returns. Former civil servants are more likely than other corporate leaders to enter new industries, and those who manage state-owned enterprises (SOEs) diversify their firms in a manner that is largely inconsistent with the recommendations of scholars of corporate strategy. As a result, the performance effects of diversification differ sharply across SOEs and private firms. More generally, the authors find little evidence that shareholders benefit from appointing former bureaucrats to the position of CEO despite their extensive knowledge of government processes in an economy where the influence of the state is all pervasive. These findings add to the recent literature on the importance of managerial style and CEO characteristics. In this study CEOs matter, but the authors also show that private-sector incentives can largely mute the influence of personality. Specifically, former bureaucrats who manage private companies show few of the weaknesses that are characteristic of their peers at state-owned enterprises. In the context of private firms operating in China, private-sector incentives trump managerial style.
Weili Ding, Queen's University, Canada; and Yuan Zhang, Fudan University, China
When a Son is Born: The Impact of Fertility Patterns on Family Finance in Rural China
Ding and Zhang examine the impact of an observable "shock" to households in rural China, the birth of a son, on household financial activities. They develop theoretical channels that endogenously generate heterogeneity in the levels of financial activities on the basis of a child's gender, even if the parents do not possess discriminatory tastes. Using nationally representative household data collected in 300 rural Chinese villages and econometric models that account for censored financial activities as well as endogenous fertility and sex selection, they present strong evidence that having a son significantly increases both the amount that a family loans or gives to relatives and increases the amount of gifts they receive from their friends. Having a son increases the amount of gifts received from others by over 30 percent and also increases household investments in both agricultural activities and family businesses. Finally, the authors show that these family structure variables should not be treated as exogenous, and they demonstrate the robustness of their results to a number of criteria used for sample construction, specification, and to account for alternative selection biases. Taken together these results suggest that social norms or convention play important roles in household financial decisions that extend beyond the traditional role of budget constraints and consumption shocks. This has clear implications for policies that aim to address rising sex imbalance amid economic growth and discriminating investment to female children in developing countries.
Loren Brandt, University of Toronto; Aloysius Siow, University of Toronto, and Carl Vogel, NERA Economic Consulting
Large Demographic Shocks and Small Changes in the Marriage Market
Between 1958 and 1961, China experienced one of the worst famines in her history. Birth rates fell and recovered immediately afterwards. The famine also adversely affected the health of the cohorts born during this time. Brandt, Siow, and Vogel estimate the total effects of the famine on the marital behavior of famine-affected cohorts in the rural areas of Sichuan and Anhui. Their estimates incorporate general equilibrium and heterogenous treatment effects, two important components of equilibrium marital behavior. Next, they use a structural model of the marriage marke -- the Choo-Siow model -- to decompose observed marital outcomes into quantity and quality effects of the famine. The structural estimates show that the famine substantially reduced the marital attractiveness of the famine born cohort. The conclusion here is that the small observed changes in marriage rates of the famine born cohorts are attributable to a substantial decline in their marital attractiveness. Controlling for changes in educational attainment does not change the conclusion.
Kalina Manova, Stanford University and NBER; and Zhiwei Zhang, HKMA
Export Prices and Heterogeneous Firm Models
Together, Manova and Zhang examine the variation in export prices across firms, products and destinations to distinguish between alternative heterogeneous firm models of international trade. They establish five stylized facts using new data on the universe of Chinese trading firms. First, firms charging higher export prices earn larger revenues within each destination, have greater worldwide sales, and export to more markets. Second, firms that pay higher import prices set higher export prices, have greater worldwide sales, and export to more markets. Third, firms offer higher prices in larger, richer and more distant markets. Fourth, there is a positive correlation between export price and revenue across destinations within a firm. Finally, firms that export more to more countries pay a wider range of import prices and offer a broader menu of export prices. None of the heterogeneous firm models in the literature can match all of these patterns. Their results are instead consistent with quality differentiation across firms (stylized facts 1 and 2) and firms adjusting both quality and mark-ups across destinations in response to market toughness (stylized facts 3, 4 and 5).
JaeBin Ahn, Columbia University; Amit Khandelwal, Columbia University and NBER; and Shang-Jin Wei, Columbia University and NBER
The Role of Intermediaries in Facilitating Trade
Using a database that records the census of firm-level trade by Chinese firms, Ahn, Khandelwal, and Wei show that intermediaries play an important role in faciliating trade across borders. Intermediaries account for at least 20 percent of China' imports and exports in 2005. This implies that a large number of firms are able to engage in international trade without directly exporting or importing products.The authors modify a heterogenous firm trade model to allow firms to endogenously select their mode of export– either directly or indirectly through an intemediary. The model predicts that intermediaries play a relatively more important role in markets that are more difficult to penetrate. They provide empirical confirmation for this prediction and generate new facts regarding the activity of intermediaries.
Shang-Jin Wei, Columbia University and NBER; and Xiaobo Zhang, International Food Policy Research Institute
Sex Ratios and Economic Growth: Evidence from China
A severe sex ratio imbalance is common in many Asian economies. The existing literature on its consequences has focused mostly on social ills such as crimes. Wei and Zhang examine the possibility that the imbalance may also stimulate economic growth by inducing more entrepreneurial activities and hard work. They provide evidence from China. First, new domestic private firms - an important engine of growth - are more likely to emerge from regions with a higher sex ratio imbalance (holding constant other determinants of firm growth). An increase in the sex ratio by one standard deviation accounts for about half of the growth in the number of private firms. Second, households with a son in regions with a more skewed sex ratio demonstrate a greater willingness to accept relatively dangerous or unpleasant jobs and supply more work days. In contrast, the labor supply pattern by households with a daughter is unrelated to the sex ratio. Third, the growth rates of per capita GDP across the provinces are systematically related to the local sex ratio. Since the imbalance for the pre-marital age cohort will become worse over the next two decades, this growth effect is likely to persist.
Catherine Thomas, Columbia University; and Yongxiang Wang, Columbia University
The Role of Agency in Mitigating Expropriation: Firm-level Evidence from Contract Renegotiations.
According to Thomas and Wang, firm-level bargaining outcomes of contract renegotiations prompted by an exogenous policy shock in China in 2005 reveal that minority shareholders receive more favorable outcomes in cities where informal payments to local officials are high. Bureaucratic CEOs respond to private benefits in the bargaining game; moreover, their responsiveness is greater in cities where informal payments are commonplace. These results are consistent with agency or economic capture within low quality bureaucracies. Since we might also expect greater risk of expropriation from low quality vertical institutions, these findings suggest that agency can serve to restrain a government' ability to exercise unilateral power.
J. Vernon Henderson, Brown University and NBER; Hongbin Cai, Guanghua School of Management, Peking University; and Qinghua Zhang
China's Land Market Auctions: Evidence of Corruption?
Henderson, Cai, and Zhang study the urban land market in China in 2003-7. In China, all urban land is owned by the state. Leasehold use rights for land for (re)development are sold by city governments and are a key source of city revenue. Leasehold sales are viewed as a major venue for corruption, prompting a number of reforms over the years. Reforms now require all leasehold rights be sold at public auction. There are two main types of auction: regular English auction and an unusual type which we call a "two-stage auction." The latter type of auction seems more subject to corruption, or to side deals between potential bidders and the auctioneer. This research finds that sales prices are lower for two-stage auctions. However, that could be because two-stage auctions have unobservables, or that there is negative selection into two-stage relative to English auctions. The theory suggests that selection should be positive, as city officials divert hotter properties to a more corruptible auction form; and the authors find strong evidence of positive selection into two-stage auctions. Consistent with the way corruption is modeled, the price difference is explained primarily by the fact that two-stage auctions typically have just one bidder, or no competition, despite the vibrant land market in Chinese cities.
Monica Martinez-Bravo, MIT; Gerard Padro i Miquel, London School of Economics and NBER; Nancy Qian, Yale University and NBER; and Yang Yao, Peking University China
Village Democracy: The Effects of Accountability on Inequality and Production in China
Martinez-Bravo, Padro i Miquel, Qian, and Yao use a unique nationally representative data set of political reforms during 1980-2005 and a fixed effects strategy to study the effects of increased leadership accountability on economic and social outcomes in rural China. Their results show that elections moderately reduced within-village income inequality, increased taxes for the rich, had little effect on delivery to the upper levels of government, reduced the size of the government but increased wages of government personnel, and reduced village disputes by more than 50 percent. However, elections also decreased gross income levels, with larger proportional decreases for richer households. It decreased gross income of the top 90th percentile by approximately 10 percent; and that of the median household by approximately 5 percent. Similarly, elections decreased consumption expenditure, with larger percentage reductions for richer households.
Jie Bai, University of Pennsylvania; and Joel Waldfogel, University of Pennsylvania and NBER
Movie Piracy and Sales Displacement in Two Samples of Chinese Consumers
Authorities in U.S. industry and government believe that intellectual property piracy is rampant in China. Because there is little evidence on the rate at which unpaid consumption displaces paid consumption, we do not know how the amount of pirate consumption affects the volume of paid consumption. Bai and Waldfogel provide direct evidence on both the volume of unpaid consumption and the rate of sales displacement for movies in China. They use two surveys administered in late 2008 and mid-2009. First, using a survey of Chinese college students' movie consumption and an empirical approach parallel to a similar recent study of U.S. college students, they find that three quarters of movie consumption is unpaid and that each instance of unpaid consumption displaces 0.14 paid consumption instances. Second, a survey of online Chinese consumers reveals similar patterns of paid and unpaid movie consumption but a displacement rate of roughly zero. They speculate on the small displacement rate finding relative to most of the piracy literature.
Karen Fisher-Vanden, Pennsylvania State University;Gary Jefferson, Brandeis University;Yaodong Liu, China National Bureau of Statistics;and Jinchang Qian, China National Bureau of Statistics
Open Economy Impacts on Energy Consumption: Technology Transfer and FDI Spillovers in China’s Industrial Economy
Fisher-Vanden, Jefferson, Liu, and Qian use firm-level data for China's industrial enterprises to test the importance of open economy effects on both overall and energy productivity. They examine the impact of firm-level FDI and technology development expenditures on total cost and energy use, as well as the horizontal, upstream, and downstream spillover effects of concentrations of FDI and technology development spending. Technology development expenditure consists of internal spending within the firm, measured somewhat more broadly than R and D, and purchases of imported technology. The researchers find that knowledge transfers through vertical linkages have a greater influence on improving both overall and energy productivity than own-knowledge or transfers through horizontal linkages. Own-knowledge and horizontal knowledge spillovers are more important for the development of new products and for the development of products targeting the export market. As their results suggest, the past emphasis on improving China's energy productivity by increasing own-firm innovative activities and knowledge spillovers through horizontal linkages is overlooking the potentially important vertical linkages as key channels for reducing China's energy consumption.