April 10 and 11, 2015
Xiaoxue Zhao, Duke University
This paper examines rural communities' optimal institutional choice under communal tenure. Zhao argues that frequent land reallocations with a labor-contingent rule of allocation, despite inefficiently trapping labor in agriculture, can nonetheless be welfare-improving compared to secure tenure. She relies on a legal reform in 2003 that stopped land reallocations in all Chinese villages, and adopts a difference-in-difference strategy to identify the causal effects of reallocations. On average, the elimination of land reallocations increased off-farm labor and household per capita net income by 8% and 7% respectively. However, this came at the cost of a 5% decrease in total agricultural output and a significant jump in income inequality.
Teng Li, Haoming Liu, and Alberto Salvo, National University of Singapore
Li, Liu, and Salvo examine day-to-day fluctuations in worker-level output over 15 months for a panel of 98 manufacturing workers at a plant located in an industrial city in Hebei province, north China. Long-term workers earn piece-rate wages, with no base pay or minimum pay, for homogeneous tasks performed over fixed 8-hour shifts. Over the sample period, ambient fine-particle (PM 2.5) mass concentrations measured at an outdoor air monitor located 2 km from the plant ranged between 10 and 773 micrograms per cubic meter (µg/m3 , 8-hour means), variation that is an order of magnitude larger than what is observed in the rich world today. The researchers document large reductions in productivity, of the order of 15%, over the first 200 µg/m3 rise in PM 2.5 concentrations, with the drop leveling off for further increases in fine-particle pollution. A back-of-the-envelope calculation suggests that labor productivity across 190 Chinese cities could rise by on average 4% per year were the distributions of hourly PM 2.5 truncated at 25 µg/m3. The authors also find reduced product quality as pollution rises. Their model allows for selection into work attendance, though they do not find particle pollution to be a meaningful determinant of non-attendance, which is very low in their labor setting. Subsequent research should verify the external validity of their findings.
Nancy Qian, Yale University and NBER, and Jaya Wen, Yale University
This paper investigates the effects of a national anti-corruption policy in China focused on reducing bribes and luxury consumption of government officials. Qian and Wen document that it reduced the imports of luxury goods that are easily observed by the public by approximately 55%, 194 million 2012 USD, while having no effect on goods that can be consumed away from public view.
Brent Ambrose, Pennsylvania State University; Yongheng Deng, National University of Singapore; and Jing Wu, Tsinghua University
The intertwining of local Chinese housing markets with government fiscal policies coincides with the significant economic growth in China over the past 25-years. This connection is the direct result of China's central government reforms to its fiscal system that have encouraged local governments to rely on land sales and development to fund required infrastructure projects. Since China does not allow local governments to directly participate in the municipal bond market, these governments rely on a unique funding mechanism known as Local Government-Backed Investment Units (LGBIU). Ambrose, Deng, and Wu study the linkage between the solvency of local government debt and local housing market risk. Their results indicate that areas with higher expected house price growth issue debt with lower risk premiums. Furthermore, bonds issued by LGBIUs from areas that experience greater changes in housing prices have a corresponding decline in observed yield spreads. Thus, the results suggest that investors do price local housing risk into Chinese municipal bond risk premiums.
Carlos Garriga, Federal Reserve Bank of St. Louis; Yang Tang, Nanyang Technological University, Singapore; and Ping Wang, Washington University in St. Louis and NBER
This paper explores the role played by structural transformation and the resulting relocation of workers from rural to urban areas in the recent housing boom in China. This development process has fostered an ongoing increase in urban housing demand, which, combined with a relatively inelastic supply due to land and entry restrictions, has raised housing and land prices. Garriga, Tang, and Wang examine the issue using a multi-sector dynamic general-equilibrium model with endogenous rural urban migration and endogenous housing demand and supply. Their quantitative results suggest that the development process accounts for two-thirds of housing and land price movements across all urban areas. This mechanism is amplified in an extension calibrated to the two largest cities indicating that market fundamentals remain a key driver of housing and land prices.
Nathaniel Baum-Snow, Brown University and NBER; Loren Brandt, University of Toronto; J. Vernon Henderson, London School of Economics; Matthew Turner, Brown University; and Qinghua Zhang, Peking University
Baum-Snow, Brandt, Henderson, Turner, and Zhang quantify the causal effects of investments in the road and railroad networks on economic growth in Chinese cities and regions. The researchers separately measure the influence of changes in access to markets that have come through better inter-regional and international transport links from the more direct effects of transport infrastructure on city level productivity, which may operate through various channels. Moreover, by separately considering effects of transportation on city and regional growth, the authors make progress on separating out the extent to which improved transport infrastructure promotes aggregate growth versus redistribution of economic activity. Critical to the authors' evaluation is the use of pseudo-random variation in the allocation of transport networks to cities and their surrounding regions.
Alexander Ljungqvist, New York University and NBER
Chen, Jiang, Ljungqvist, Lu, and Zhou study the efficiency of internal capital markets at state-controlled and privately owned business groups in China. Using highly granular data on within-group capital flows, the researchers document stark differences: while private groups allocate more capital to units with better investment opportunities, state groups do the opposite. Minority shareholders in state owned firms suffer as a result. Product market competition and external monitoring by outside investors help discipline state groups' tendency to ignore investment opportunities. The authors conjecture that capital allocations at state groups reflect the private career objectives of their chairmen. They show that promotion depends not on increasing profitability but on avoiding layoffs. Consistent with a career motive, the researchers find that capital allocations are used to prop up large and struggling employers, but only if the chairman has a realistic chance of being promoted and if the cost of self-interested behavior is not too high.
Ke Tang, Tsinghua University, and Haoxiang Zhu, MIT and NBER
This paper proposes and tests a theory of using commodities as collateral for financing. In the presence of capital control and financial frictions, financial investors import commodities and pledge them as collateral to capture the higher expected return in the importing country. The collateral demand for commodities increases commodity prices globally; it also increases futures risk premium in the importing country but reduces that in the exporting country. Tang and Zhu test the theoretical predictions on eight commodities in China and developed markets. The evidence supports their theory. The results suggest that collateral demands can explain up to 11.9%-15.0% of the price increase of major industrial metals since 2007. Overall, the researchers' theory and evidence complement the theory of storage and provide new insights to the financialization of commodity markets.
Vivian Z. Yue, Emory University; Jiandong Ju, Shanghai University of Finance and Economics; and Hanwei Huang, London School of Economics
Huang, Ju, and Yue document the patterns of structural adjustments in Chinese manufacturing production and export: the production became more capital intensive while export participation increased for labor intensive sectors and decreased for capital intensive sectors from 1999 to 2007. To explain these patterns, the researchers embed a heterogeneous firm (Melitz 2003) into the Dornbusch-Fischer-Samuelson model of both continuous Ricardian and Heckscher-Ohlin (1977, 1980) with home bias preference. The authors structurally estimate the model by GMM. The estimation result indicates the following main findings: capital labor ratio almost tripled, technology improved significantly and favored more labor intensive industries, trade liberalization mostly came from reduction in fixed cost of export for China, and reduction in preference for home goods between 1999 and 2007. Counterfactual simulations show that the adjustment in production pattern is mainly driven by changes in endowment while the changes in export participation are driven by technology, trade liberalization and reduction of home bias preference, but mostly driven by changes in technology.
Ying Bai, Hong Kong University of Science and Technology, and Ruixue Jia, University of California, San Diego
This paper studies how the abolition of an elite recruitment system China's civil exam system that lasted over 1,300 years affects political stability. Employing a panel dataset across 262 prefectures and exploring the variations in the quotas on the entry-level exam candidates, Bai and Jia find that higher quotas per capita were associated with a higher probability of revolution participation after the abolition and higher incidence of uprisings in 1911 that marked the end of the 2,000 years of imperial rule. This finding is robust to various checks including using the number of small rivers and short-run exam performance before the quota system as instruments. The patterns in the data appear most consistent with a model in which the abolition affected citizens' prospect of upward mobility (POUM) more in regions with higher quotas under the exam system. In addition, the researchers document that modern human capital also contributed to the revolution and that social capital strengthened the effect of quotas on the participation in the revolution.