Working Papers
Trade and Labor
[1] Skill-Biased Imports, Skill Acquisition, and Migration, with Jingting Fan
- Young Economist Award, FIW International Economics conference 2021
- R&R, Journal of International Economics
Imported capital goods, which embody skill-complementary technologies, can increase the supply of skills in developing countries. Focusing on China and using a shift-share design, we show that city-level capital goods import growth increases the local skill share and that both skill acquisition and migration play a role. We develop and quantify a spatial equilibrium model with these two mechanisms to examine the aggregate effects of capital goods imports, accounting for trade and migration linkages between cities. Counterfactual experiments suggest that the growth in capital goods imports in China between 2000 and 2010 led to a 3.7-8.9 million increase in the stock of college graduates, representing 5.7-13% of the total increase over this period. However, this growth disproportionately favored coastal regions, exacerbating existing spatial disparities.
Trade Policy, Market Strucuture, and Economic Incidence
[1] Who Pays for the Tariffs and Why?A Tale of Two Countries, with Chaonan Feng and Liyan Han
Meida coverage: CRC, VOXEU, Businesswire, YahooFinance, Trillions.News, Global Trade Review, Sourcing Journal, LEADERSNET, MarketWatch
During the U.S.-China trade war, the U.S. punitive tariffs were almost entirely borne by U.S. importers. In contrast, only 68% of China’s retaliatory tariffs were paid by Chinese importers. The puzzling difference between the U.S. and China is mainly driven by their different import structures and product heterogeneity in tariff pass-through. China mainly imported products with lower tariff pass-through from the U.S., such as agricultural products and aircraft, while the U.S. primarily imported products with higher tariff pass-through from China, such as electronics. Furthermore, we decompose the product-level tariff pass-through and show that a higher ratio of import demand elasticity over export supply elasticity leads to lower tariff pass-through under perfect competition.
[2] Diversification or Specialization? The Responses of Multi-Product Exporters to Quota Removal, with Ruxue Bai, Ying Li, and Libo Yin
This paper investigates how multi-product firms narrow their product scope and export destination in response to positive demand shocks. Focusing on the effects of quota removal, we show that an increase in demand for quota-bound products crowds out quota-free products through cannibalization and reduces exports to quota-free destinations through capacity constraint. Consistent with the theory, we find that Chinese exporters' product concentration and destination concentration increase by 25% and 2%, respectively, after the removal of externally imposed quotas on textile and clothing exports. The concentration is accompanied by export shifts from quota-free products and destinations to quota-bound ones. Accordingly, affected firms have better capital market performance, with a 5% higher abnormal return within the three-day event window.
[3] Hedging along the Global Value Chain: Trade War and Firm Value, with Huiyi Liao, Liyan Han, and Libo Yin
We study the asset pricing implications of a firm's participation in the global supply chain. We develop a model to show that a firm's global sourcing strategy maintains an option to hedge its value against trade policy shocks. Higher output tariffs increase firm value through reduced import competition, whereas higher input tariffs decrease firm value through higher input costs. We test this model in the context of the US-China trade war and quantify the impact of trade protectionism on Chinese firm values.
One standard deviation increase of input tariff reduces the stock return by 6.3 percent for firms that import their inputs, more than offsetting the gains from raising output tariffs. The negative effect of input tariffs is more substantial for firms relying more on foreign intermediate inputs. The welfare loss of the Chinese retaliatory tariffs was as much as $45.6 billion, 1.8% of China's total market capitalization.
Trade, Enviroment, and Political Economy
[1] When Growth Stumbles, Pollute? Trade War, Environmental Enforcement, and Pollution, with Xinming Du
This paper studies the short-term trade-off between economic growth and environmental governance from the perspective of political incentives. In the context of international trade conflicts, we use the U.S.-China trade war as a natural experiment and find that higher U.S. tariffs worsen air quality in China. The city-level analysis shows that a 1% increase in the tariff burden leads to 0.9% and 0.7% increases in SO2 and PM2.5, respectively. Firm-level emission data generate similar results. Interestingly, the hourly monitor-level air quality data suggests that the pollution increases are concentrated at night. We hypothesize that the surprising findings can be largely attributed to the lenient environmental policies adopted by local governments when faced with the risks of economic downturn. We provide suggestive evidence that cities more exposed to the U.S. tariffs attach less emphasis on environmental regulations in local government reports and charge fewer fines on firms violating environmental regulations. Cities with native and older party secretaries and areas closer to province boundaries experience a less severe increase in pollution during the trade war. Our findings are relevant as China scrambles to maintain growth in the face of economic headwinds.
[2] Who Pays for the Emission Fee? Cost Transmission along the Supply Chain, with Ying Li, Zhi Su, and Libo Yin
We study the economic incidence of SO2 emission fees in China under a general imperfect competition framework. By incorporating input-output linkages into the workhorse tax incidence model, we derive statistically sufficient representations of the incidence and show that emission fees affect manufacturing producers through two channels. First, manufacturing producers bear the full brunt of emissions fees imposed directly on them. Second, emission fees imposed on their upstream suppliers translate into higher input costs faced by manufacturing producers, who bear 23% of the burden. Neglecting the role of the latter would result in an underestimation of 6%-12% of the cost burden for most industries.
Trade, Firm Location, and Agglomeration
[1] Export-Induced Spatial Concentration, with Jonas Casper
We empirically examine the role of international trade in shaping the widening regional disparities in economic development. Initially larger cities should benefit more from trade openness because productive exporters are disproportionately located there (Gaubert, 2018). By exploiting a unique dataset which contains the geo-locations of Chinese firms, we find a widening spatial divergence of economic activity concentration in response to trade openess, both across cities and within cities. These effects are not exclusive to industries directly exposed to trade openness, but also spill over locally to related industries.
[2] Clustering as a Shield: Mitigating the Negative Effects of the Trade War, with Liyan Han, Ying Li, and Jinfeng Luo
We analyze the effect of industry clusters on regional economic resilience in China during the US-China trade war. We exploit regional variations stemming from the interaction between industry clustering, namely the geographic concentration of firms in similar industries, and trade exposures arising from initial differences in export specialization across products. For a one percentage point increase in export tariffs, a prefecture at the 25th percentile of the cluster index distribution experienced 3.4 percentage points, that is 21.5 percent, more reduction in night light intensities than a prefecture at the 75th percentile. We hypothesize that industry clusters can mitigate the negative impacts of U.S. tariffs because firms located in clustering regions can adjust production at lower costs for using similar inputs. We corroborate the hypothesis by showing that regions, where firms have closer input-output linkages and similar workforce structures, have higher cluster indexes and higher degrees of resilience to tariff increases. Our study sheds light on the sources of differential regional responses to global trade disruptions.
[3] Trade Policy and the Geography of Global Production, with Harald Fadinger and Jan Schymik
We assess how trade policy affects the geography of global production within global value chains (GVCs) using plant-level information on sales and employment for 50 countries from Worldbase, 4-digit SIC product-level import and tariff data for the years 1993 to 2018 and information from detailed US input-output tables. We find that (i) product-level imports respond more sensitively to tariffs in industries that are closer to final demand (more downstream); (ii) manufacturing activity is negatively impacted by input tariffs, in particular in more downstream industries; (iii) because GVCs lead to interdependencies in location decisions of various production stages, there are important third-country effects of input tariffs on local manufacturing activities; (iv) at the level of multinational firms, higher tariffs charged on imports from any given location reduce the number and sales of their local affiliates, and these effects are larger in more downstream sectors.
Selected Work in Progress
Trade, Enviroment, and Political Economy
[1] Trade-induced Political Changes, with Ricardo Dahis
[2] Importing Pollution? the Health Consequences of Garbage Imports, with Liyan Han and Li Wan
Publications
[1] China's Skill-Biased Imports, China Economic Review, 2022, vol. 74, with Hongbin Li and Hong Ma
[IZA Discussion Paper] [EPoS Press Release]
[2] Understanding Regional Export Growth in China, World Trade Evolution: Growth, Productivity and Employment, 2018, Routledge, L.Y.Ing and M.Yu (ed). pages 195-228. with David Autor, David Dorn, and Gordon Hanson
[3] Exogenous Shocks and the Spillover Effects between Uncertainty and Oil Price, Energy Economics, 2016, vol. 54, pages 224-234, with Liyan Han, Libo Yin, and Yimin Zhou
[4] Do Foreign Institutional Investors Stabilize the Capital Market? Economics Letters, 2015, vol. 136, pages 73-75, with Liyan Han, Libo Yin, and Qingqing Zheng
[5] The End of Cheap Chinese Labor, Journal of Economic Perspectives, 2012, vol. 26(4), pages 57-74, with Hongbin Li, Binzhen Wu, and Yanyan Xiong
Publications (in Chinese, pre Ph.D.)
[1] Family structure and Puzzle of U-shaped Age Saving Profile, Economic Research Journal (经济研究) , 2014, with Binzhen Wu
[2] Value Investing or Value Creating? A Comparative Study between Foreign and Domestic Institutional Investors, China Economic Quarterly (经济学季刊), 2013, with Liyan Han
[3] Migration Cost and Labor Shortage, Chinese Social Sciences Today (中国社会科学报), 2011, with Hongbin Li
[4] Model Improvements and Empirical Research for Prediction of Small and Medium-Sized Companies in the Stock Market, Journal of Quantitative and Technical Economics (数量经济技术经济研究), 2010, with Liyan Han
Trade and Labor
[1] Skill-Biased Imports, Skill Acquisition, and Migration, with Jingting Fan
- Young Economist Award, FIW International Economics conference 2021
- R&R, Journal of International Economics
Imported capital goods, which embody skill-complementary technologies, can increase the supply of skills in developing countries. Focusing on China and using a shift-share design, we show that city-level capital goods import growth increases the local skill share and that both skill acquisition and migration play a role. We develop and quantify a spatial equilibrium model with these two mechanisms to examine the aggregate effects of capital goods imports, accounting for trade and migration linkages between cities. Counterfactual experiments suggest that the growth in capital goods imports in China between 2000 and 2010 led to a 3.7-8.9 million increase in the stock of college graduates, representing 5.7-13% of the total increase over this period. However, this growth disproportionately favored coastal regions, exacerbating existing spatial disparities.
Trade Policy, Market Strucuture, and Economic Incidence
[1] Who Pays for the Tariffs and Why?A Tale of Two Countries, with Chaonan Feng and Liyan Han
Meida coverage: CRC, VOXEU, Businesswire, YahooFinance, Trillions.News, Global Trade Review, Sourcing Journal, LEADERSNET, MarketWatch
During the U.S.-China trade war, the U.S. punitive tariffs were almost entirely borne by U.S. importers. In contrast, only 68% of China’s retaliatory tariffs were paid by Chinese importers. The puzzling difference between the U.S. and China is mainly driven by their different import structures and product heterogeneity in tariff pass-through. China mainly imported products with lower tariff pass-through from the U.S., such as agricultural products and aircraft, while the U.S. primarily imported products with higher tariff pass-through from China, such as electronics. Furthermore, we decompose the product-level tariff pass-through and show that a higher ratio of import demand elasticity over export supply elasticity leads to lower tariff pass-through under perfect competition.
[2] Diversification or Specialization? The Responses of Multi-Product Exporters to Quota Removal, with Ruxue Bai, Ying Li, and Libo Yin
This paper investigates how multi-product firms narrow their product scope and export destination in response to positive demand shocks. Focusing on the effects of quota removal, we show that an increase in demand for quota-bound products crowds out quota-free products through cannibalization and reduces exports to quota-free destinations through capacity constraint. Consistent with the theory, we find that Chinese exporters' product concentration and destination concentration increase by 25% and 2%, respectively, after the removal of externally imposed quotas on textile and clothing exports. The concentration is accompanied by export shifts from quota-free products and destinations to quota-bound ones. Accordingly, affected firms have better capital market performance, with a 5% higher abnormal return within the three-day event window.
[3] Hedging along the Global Value Chain: Trade War and Firm Value, with Huiyi Liao, Liyan Han, and Libo Yin
We study the asset pricing implications of a firm's participation in the global supply chain. We develop a model to show that a firm's global sourcing strategy maintains an option to hedge its value against trade policy shocks. Higher output tariffs increase firm value through reduced import competition, whereas higher input tariffs decrease firm value through higher input costs. We test this model in the context of the US-China trade war and quantify the impact of trade protectionism on Chinese firm values.
One standard deviation increase of input tariff reduces the stock return by 6.3 percent for firms that import their inputs, more than offsetting the gains from raising output tariffs. The negative effect of input tariffs is more substantial for firms relying more on foreign intermediate inputs. The welfare loss of the Chinese retaliatory tariffs was as much as $45.6 billion, 1.8% of China's total market capitalization.
Trade, Enviroment, and Political Economy
[1] When Growth Stumbles, Pollute? Trade War, Environmental Enforcement, and Pollution, with Xinming Du
This paper studies the short-term trade-off between economic growth and environmental governance from the perspective of political incentives. In the context of international trade conflicts, we use the U.S.-China trade war as a natural experiment and find that higher U.S. tariffs worsen air quality in China. The city-level analysis shows that a 1% increase in the tariff burden leads to 0.9% and 0.7% increases in SO2 and PM2.5, respectively. Firm-level emission data generate similar results. Interestingly, the hourly monitor-level air quality data suggests that the pollution increases are concentrated at night. We hypothesize that the surprising findings can be largely attributed to the lenient environmental policies adopted by local governments when faced with the risks of economic downturn. We provide suggestive evidence that cities more exposed to the U.S. tariffs attach less emphasis on environmental regulations in local government reports and charge fewer fines on firms violating environmental regulations. Cities with native and older party secretaries and areas closer to province boundaries experience a less severe increase in pollution during the trade war. Our findings are relevant as China scrambles to maintain growth in the face of economic headwinds.
[2] Who Pays for the Emission Fee? Cost Transmission along the Supply Chain, with Ying Li, Zhi Su, and Libo Yin
We study the economic incidence of SO2 emission fees in China under a general imperfect competition framework. By incorporating input-output linkages into the workhorse tax incidence model, we derive statistically sufficient representations of the incidence and show that emission fees affect manufacturing producers through two channels. First, manufacturing producers bear the full brunt of emissions fees imposed directly on them. Second, emission fees imposed on their upstream suppliers translate into higher input costs faced by manufacturing producers, who bear 23% of the burden. Neglecting the role of the latter would result in an underestimation of 6%-12% of the cost burden for most industries.
Trade, Firm Location, and Agglomeration
[1] Export-Induced Spatial Concentration, with Jonas Casper
We empirically examine the role of international trade in shaping the widening regional disparities in economic development. Initially larger cities should benefit more from trade openness because productive exporters are disproportionately located there (Gaubert, 2018). By exploiting a unique dataset which contains the geo-locations of Chinese firms, we find a widening spatial divergence of economic activity concentration in response to trade openess, both across cities and within cities. These effects are not exclusive to industries directly exposed to trade openness, but also spill over locally to related industries.
[2] Clustering as a Shield: Mitigating the Negative Effects of the Trade War, with Liyan Han, Ying Li, and Jinfeng Luo
We analyze the effect of industry clusters on regional economic resilience in China during the US-China trade war. We exploit regional variations stemming from the interaction between industry clustering, namely the geographic concentration of firms in similar industries, and trade exposures arising from initial differences in export specialization across products. For a one percentage point increase in export tariffs, a prefecture at the 25th percentile of the cluster index distribution experienced 3.4 percentage points, that is 21.5 percent, more reduction in night light intensities than a prefecture at the 75th percentile. We hypothesize that industry clusters can mitigate the negative impacts of U.S. tariffs because firms located in clustering regions can adjust production at lower costs for using similar inputs. We corroborate the hypothesis by showing that regions, where firms have closer input-output linkages and similar workforce structures, have higher cluster indexes and higher degrees of resilience to tariff increases. Our study sheds light on the sources of differential regional responses to global trade disruptions.
[3] Trade Policy and the Geography of Global Production, with Harald Fadinger and Jan Schymik
We assess how trade policy affects the geography of global production within global value chains (GVCs) using plant-level information on sales and employment for 50 countries from Worldbase, 4-digit SIC product-level import and tariff data for the years 1993 to 2018 and information from detailed US input-output tables. We find that (i) product-level imports respond more sensitively to tariffs in industries that are closer to final demand (more downstream); (ii) manufacturing activity is negatively impacted by input tariffs, in particular in more downstream industries; (iii) because GVCs lead to interdependencies in location decisions of various production stages, there are important third-country effects of input tariffs on local manufacturing activities; (iv) at the level of multinational firms, higher tariffs charged on imports from any given location reduce the number and sales of their local affiliates, and these effects are larger in more downstream sectors.
Selected Work in Progress
Trade, Enviroment, and Political Economy
[1] Trade-induced Political Changes, with Ricardo Dahis
[2] Importing Pollution? the Health Consequences of Garbage Imports, with Liyan Han and Li Wan
Publications
[1] China's Skill-Biased Imports, China Economic Review, 2022, vol. 74, with Hongbin Li and Hong Ma
[IZA Discussion Paper] [EPoS Press Release]
[2] Understanding Regional Export Growth in China, World Trade Evolution: Growth, Productivity and Employment, 2018, Routledge, L.Y.Ing and M.Yu (ed). pages 195-228. with David Autor, David Dorn, and Gordon Hanson
[3] Exogenous Shocks and the Spillover Effects between Uncertainty and Oil Price, Energy Economics, 2016, vol. 54, pages 224-234, with Liyan Han, Libo Yin, and Yimin Zhou
[4] Do Foreign Institutional Investors Stabilize the Capital Market? Economics Letters, 2015, vol. 136, pages 73-75, with Liyan Han, Libo Yin, and Qingqing Zheng
[5] The End of Cheap Chinese Labor, Journal of Economic Perspectives, 2012, vol. 26(4), pages 57-74, with Hongbin Li, Binzhen Wu, and Yanyan Xiong
Publications (in Chinese, pre Ph.D.)
[1] Family structure and Puzzle of U-shaped Age Saving Profile, Economic Research Journal (经济研究) , 2014, with Binzhen Wu
[2] Value Investing or Value Creating? A Comparative Study between Foreign and Domestic Institutional Investors, China Economic Quarterly (经济学季刊), 2013, with Liyan Han
[3] Migration Cost and Labor Shortage, Chinese Social Sciences Today (中国社会科学报), 2011, with Hongbin Li
[4] Model Improvements and Empirical Research for Prediction of Small and Medium-Sized Companies in the Stock Market, Journal of Quantitative and Technical Economics (数量经济技术经济研究), 2010, with Liyan Han