“Detecting All-Pay Contests with a Regression Discontinuity Design: Evidence from China’s Skyscraper Race.” Revise and Resubmit. Regional Science and Urban Economics. [Latest Draft] [SSRN]
Abstract: All-pay contests are ubiquitous, and the regulatory authorities’ ability to proactively detect and take control of these contests is crucial because they often induce rent dissipation, but the relevant empirical research is limited. In this article, I propose to identify such contests using a regression discontinuity approach. I begin by developing a game-theoretical model for multi-stage, two-player, all-pay auctions with carryover. The mixed strategy equilibrium implies that, if a player’s current bid is surpassed by her rival’s, then she would be more inclined to increase her bid in the next period despite the potential rent dissipation, and this inclination is discontinuous at which the two players’ current bids are equal. I show how to empirically use this theory-based discontinuity by applying it to detect if there exists a race between Chinese cities to build taller skyscrapers. I confirm the presence of this height competition by identifying the discontinuity in a city’s probability of constructing a taller building. Finally, I propose to make use of the heterogeneity in the magnitudes of the estimated discontinuities to search for the determinants of participation in the all-pay contest of our interest. I verify this method by using the skyscraper data once more, and the estimation results suggest two potential solutions to China’s overbuilding problem: (i) integrating local cultural heritage into urban planning and (ii) disassociating skyscraper heights from city leaders’ career advancement incentives.
“Leadership Rotations and the Convergence of Subnational Economic Policies in China: Evidence from Provincial Government Work Reports.” Accepted. Journal of Law, Economics, and Organization. [Latest Draft] [SSRN]
Abstract: This article examines the impacts of China’s subnational leadership rotations over the past two decades, with a focus on quantifying how such an institutional arrangement has affected the policy choices of local governments. Utilizing the annual government work reports at the province level, which review the socioeconomic development in the last year and set economic targets for the coming year, I find that a shuffled provincial leader would choose similar economic policies across different provinces under his/her rule, and this has translated into similarities in several policy outcomes. I then show that such policy isomorphism has been driven mainly by convergence in which topics these reports cover, rather than by convergence in how the provincial leaders discuss a given policy issue. However, according to my event study estimates, this economic policy similarity might disappear soon after the shuffled leader leaves office, thus implying that the convergence effect of provincial leadership rotations might not be permanent. One plausible explanation for these findings is that a leadership exchange indicates that a provincial leader is selected for further promotion in the future because the central government favors the economic policies that person implemented in the origin province, so that shuffled leader would tend to replicate some of these policies in the destination province.
“China’s Outward Foreign Direct Investment in the Belt and Road Initiative: What are the Motives for Chinese Firms to Invest?” China Economic Review, 2021. (With Jeff Nugent) [Publisher Version]
Abstract: Because of the potentially large and important effects of the extremely ambitious Belt and Road Initiative (BRI) launched by China in late 2013, considerable attention has been given to the motives for, and repercussions of, the BRI-driven infrastructural projects. Yet, the non-infrastructural outward foreign direct investment (FDI) from China to BRI countries, which varies quite substantially across different sectors and different countries, has not yet received much attention. In contrast to some recent studies showing that the massive initiative has increased China’s total FDI outflows to fellow BRI countries, in this paper, based on our sector-level difference-in-differences models, we find that effect to be statistically insignificant. Yet, at the same time, we provide empirical evidence on the sectoral pattern of China’s outward FDI before and after 2014 indicating that China’s FDI outflows to BRI countries have significantly increased in sectors characterized by overcapacity and contributing to pollution in China, thereby demonstrating that China’s BRI-driven outward FDI has been very selective in terms of sectors. We confirm these findings with a variety of robustness checks and show that it is BRI countries with relatively low institutional quality that have been more likely to receive these types of FDI from China. We thus speculate that Chinese firms have been motivated to place FDI investments in BRI countries for the sake of alleviating China’s own overcapacity and pollution problems. Our findings lead us to suggest that, although these sectoral patterns are consistent with the different stages of economic development in which China and its fellow BRI-identified countries find themselves, Chinese investors and host country governments should be more concerned with the potential for unwanted side-effects of the FDI investments so that the mutually beneficial effects of the BRI can be sustained into the indefinite future among all countries involved.
“Does the All-China Federation of Industry and Commerce Align Private Firms with the Goals of the People’s Republic of China’s Belt and Road Initiative?” Asian Development Review, 2020. (With Jeff Nugent) [Publisher Version]
Abstract: This paper demonstrates that the largest business association of private firms in the People’s Republic of China (PRC), the All-China Federation of Industry and Commerce (ACFIC), has induced its members to help achieve the goals of the PRC’s extremely ambitious but risky Belt and Road Initiative (BRI) since its inauguration in 2013. Through its newspaper, the ACFIC has drawn the attention of its member firms to countries participating in the BRI, which has led to increased trade between provinces in the PRC and BRI-participating countries emphasized by the ACFIC’s newspaper. The results show that the PRC’s exports have been encouraged substantially more than its imports, which could be a cause for concern for the sustainability of the BRI. The results were obtained through various specially designed versions of the gravity model and have shown to be robust to the use of various methods for mitigating possible estimation biases.