Competition, markups, and gains from trade: A quantitative analysis of China between 1995 and 2004

Sing Lun Fellowship of Singapore Management Universit

Competition and Gains from Trade: A Quantitative Analysis of China Between 1995 and 2004

SMU Economics and Statistics Working Paper Series, Paper No. 13-2015</p

Wrong Skewness and Finite Sample Correction

In parametric stochastic frontier models, the composed error is specified as the sum of a two-sided noise component and a one-sided inefficiency component, which is usually assumed to be half-normal, implying that the error distribution is skewed in one direction. In practice, however, estimation residuals may display skewness in the wrong direction. Model re-specification or pulling a new sample is often prescribed. Since wrong skewness is considered a finite sample problem, this paper proposes a finite sample adjustment to existing estimators to obtain the desired direction of residual skewness. This provides another empirical approach to dealing with the so-called wrong skewness problem

Capital misallocation in China : financial frictions or policy distortions?

Policy distortions and financial frictions are two leading candidates in generating capital misallocation. This paper designs an identification strategy to separate their effects on average MRPK dispersion across firm ownership, as the average treatment effect on the treated and the selection bias from a policy intervention. Financial frictions are estimated to cause an aggregate TFP loss of 8.3 percent on the intensive margin, which accounts for 30 percent of the capital misallocation observed in China. Using the counterfactual MRPK from a matching procedure, some popular hypotheses on what drive the policy distortions are tested in the matched samples.MOE (Min. of Education, S’pore)Accepted versio

Investment-cash flow sensitivities and capital misallocation

This paper directly estimates the effect of financing constraint on capital misallocation. We provide a simple theoretical framework that links the heterogeneity in investment-cash flow sensitivity, a common indicator of financing constraint, to the dispersion of marginal revenue product of capital, a direct measure of allocative inefficiency. Our model shows that the existence of both constrained and unconstrained firms is a sufficient though not necessary condition for capital misallocation. Empirically, we run an error-correction investment model for U.S. Compustat and Chinese manufacturing firms, and for various sub-samples of the Chinese firms. Our estimates on investment-cash flow sensitivities imply a 5% and 15% total factor productivity loss respectively for the balanced and unbalanced panels of Chinese firms. Our identification strategy does not require any monotonic relationship between investment-cash flow sensitivities and severity of financial frictions, thus is not subject to the Kaplan and Zingales critique.Accepted versio

On the reverse causality between output and infrastructure : the case of China

After the 2008 global financial crisis, promoting public infrastructure investment as a growth engine has been revived by economists. China has been considered as such a successful example of enhancing economic growth by massive infrastructure investments in the past decades. However, the literature has provided conflicting empirical results on the productivity effect of public infrastructure using aggregate data, mainly due to reverse causality. Thus, the estimated productivity effect could be either upward or downward biased. In this paper we rely on the institutional background of infrastructure investment in China, and explore several alternative ways to mitigate the reverse causality. Using China's provincial-level data over 1996–2015 and within the framework of an aggregate production function estimation, we find that an upward bias dominates when estimating output elasticity of public infrastructure, and that weak evidence is found on the productivity effect of public infrastructure. This finding highlights the necessity of using alternative identification strategies or data types.MOE (Min. of Education, S’pore)Accepted versio

Introduction and editorial overview — In search of new sources of growth: what China should do next?

[Extract] Welcome to this special issue of Singapore Economic Review on “In Search of New Sources of Growth: What China Should Do Next”! In the past three decades, remarkable achievements have been made in China’sdevelopment, with economic growth averaged at around 9% per annum. Rapid economic growth benefits ordinary Chinese, as can be observed that more and more Chinese travel overseas, for sight-seeing, shopping and even hunting for real estate assets. Coupled with these remarkable achievements are a number of challenges that are exerting an increasingly significant constraint on China’s road ahead, such as environmental pollutions, income inequality and regional disparities. For example, the widely spread smog in China’s major cities is likely to affect people’s health in a negative way