We examine the effects of the trade liberalization that accompanied China’s WTO accession on the evolution of markups and productivity of Chinese manufacturing firms. Although these two dimensions of performance cannot be separately identified when firm output is measured by revenue, we show that detailed price deflators make it possible to estimate the average effect of industry-level tariff reductions on both dimensions separately. Several novel findings emerge. First, cuts in output tariffs reduce markups, but raise productivity. Second, the procompetitive effects are most important for incumbents, while efficiency gains dominate for new entrants. Third, cuts in input tariffs raise both markups and productivity. We highlight several mechanisms operating in liberalized sectors that help explain our findings in the Chinese context. Liberalized sectors saw an increase in the exit of private firms and more frequent replacement of management in badly performing state-owned firms. Both patterns are likely to reduce agency problems. The initial productivity of new entrants is higher in more open sectors. And while lower input tariffs had only a limited role in increasing access to imported intermediates, they had a strong price-reducing effect, even on domestically produced intermediates.
We study the role of risk aversion underlying son preference in patriarchal societies, where sons serve as better insurance for old-age support than daughters. The implications of an insurance motive on son preference are two-fold. First, prior to the birth of their children, more risk-averse parents have a stronger preference for sons than for daughters. Second, after the birth of their children, parents with sons are more risk seeking, compared to parents with daughters. We adopt a within-twin-pair fixed-effects estimator with a weak identification assumption, which enables us to jointly identify these two effects. We further conduct an incentivized choice experiment to assess parental risk attitude in a sample of Chinese twins with children, and follow up with a second twin sample to examine the replicability of the findings. In both samples, we find that parents with greater risk aversion before the birth of their children are more likely to have sons through sex selection than parents with less risk aversion. Additionally, having sons significantly decreases parental risk aversion. These results contribute to the literature on the sources of son preference and help shed light on the nature of gender inequality.
China's M2/GDP ratio keeps rising, although it is already in the highest tier throughout the world. In this paper, we investigate empirically this puzzle using different levels of data. We first provide a quantitative approach to estimate the degree of China's excess liquidity based on cross-country regression. Our results show that excess liquidity in China is over 50 percent of the liquidity implied by cross-country benchmark. Monetary expansion in fact hasn't led to severe inflation in recent decades, indicating that there must be some credit inefficiently utilized or even laid idle in the real economy. Using province-level evidence, we show that credit misallocaton between state-owned enterprises (SOEs) and private enterprises (PEs) within province may lead to local credit inefficiency, and hence generate regional excess liquidity. We further validate this channel using manufacturing firm-level data, and find that credit misallocation is deteriorated after the 4 Trillion Stimulus Plan in 2008, making the deleveraging in China's manufacturing sector more challenging.
We examine the effects of the trade liberalization that accompanied China’s WTO accession on the evolution of markups and productivity of Chinese manufacturing firms. Although these two dimensions of performance cannot be separately identified when firm output is measured by revenue, we show that detailed price deflators make it possible to estimate the average effect of industry-level tariff reductions on both dimensions separately. Several novel findings emerge. First, cuts in output tariffs reduce markups, but raise productivity. Second, the procompetitive effects are most important for incumbents, while efficiency gains dominate for new entrants. Third, cuts in input tariffs raise both markups and productivity. We highlight several mechanisms operating in liberalized sectors that help explain our findings in the Chinese context. Liberalized sectors saw an increase in the exit of private firms and more frequent replacement of management in badly performing state-owned firms. Both patterns are likely to reduce agency problems. The initial productivity of new entrants is higher in more open sectors. And while lower input tariffs had only a limited role in increasing access to imported intermediates, they had a strong price-reducing effect, even on domestically produced intermediates.
We study the role of risk aversion underlying son preference in patriarchal societies, where sons serve as better insurance for old-age support than daughters. The implications of an insurance motive on son preference are two-fold. First, prior to the birth of their children, more risk-averse parents have a stronger preference for sons than for daughters. Second, after the birth of their children, parents with sons are more risk seeking, compared to parents with daughters. We adopt a within-twin-pair fixed-effects estimator with a weak identification assumption, which enables us to jointly identify these two effects. We further conduct an incentivized choice experiment to assess parental risk attitude in a sample of Chinese twins with children, and follow up with a second twin sample to examine the replicability of the findings. In both samples, we find that parents with greater risk aversion before the birth of their children are more likely to have sons through sex selection than parents with less risk aversion. Additionally, having sons significantly decreases parental risk aversion. These results contribute to the literature on the sources of son preference and help shed light on the nature of gender inequality.
China's M2/GDP ratio keeps rising, although it is already in the highest tier throughout the world. In this paper, we investigate empirically this puzzle using different levels of data. We first provide a quantitative approach to estimate the degree of China's excess liquidity based on cross-country regression. Our results show that excess liquidity in China is over 50 percent of the liquidity implied by cross-country benchmark. Monetary expansion in fact hasn't led to severe inflation in recent decades, indicating that there must be some credit inefficiently utilized or even laid idle in the real economy. Using province-level evidence, we show that credit misallocaton between state-owned enterprises (SOEs) and private enterprises (PEs) within province may lead to local credit inefficiency, and hence generate regional excess liquidity. We further validate this channel using manufacturing firm-level data, and find that credit misallocation is deteriorated after the 4 Trillion Stimulus Plan in 2008, making the deleveraging in China's manufacturing sector more challenging.
