Browsing by Author "Xu, Yi"

This dissertation is comprised of three chapters in industrial organization and environmental economics. Chapter 2 examines the mechanism of cost efficiency following mergers of U.S. freight railroads and uncovers the sources. Efficiency is generally cited as the primary reason why mergers are good for consumers, yet there is little evidence showing the sources of cost efficiency. In this chapter, I first provide reduced-form result showing that following mergers, average shipment price significantly decreases, and the price effect of the merger is greater where railcars must be switched between two companies. However, given that markets are interdependent in railroad networks because of routing and investment decisions, merger efficiency cannot be measured simply by comparing individual markets. I addresses this with a structural model of firm pricing, routing, and investment decisions. Model estimates allow simulations that reveal sources of cost efficiency to include elimination of interchange costs, routing and consolidation of traffic, and re-optimization of investment. Welfare impacts show a great deal of geographic heterogeneity across markets.

Chapter 3 studies R\&D spill-over in the in the Korean electric motor industry. I develop and estimate a dynamic industry equilibrium model of R\&D, R\&D spill-overs, and productivity evolution of manufacturing plants in the Korean electric motor industry from 1991 to 1996. I use a Simulated Method of Moments estimator to estimate the cost of R\&D, the magnitude of the R\&D spill-over, adjustment costs of physical investment, and the distribution of plant scrap values. Counterfactual experiments of two policies are implemented. The results show that increasing the elasticity of substitution between products increases plant innovation incentives and the plant turnover. In contrast, a lower entry cost does not change industry productivity. Although the market selection effect is strengthened by higher firm turnover, the plant's incentives to invest in R\&D are reduced.

Chapter 4 analyzes mortgage lenders' behavior with respect to shale gas risk during the period of the U.S. shale gas boom, which coincided with the U.S. housing market rise, collapse and subsequent increase in lending industry scrutiny. The results show that lenders did indeed increase the weight they place on shale risk relative to income risk in mortgage pricing behavior after 2010. This effect is particularly evident for groundwater dependent properties, indicating that lenders view shale activities as placing the residential value of these properties at greater risk. I find that insurers, on average, lose around \$2,394.9, or 1.2\% of profit earned on an average mortgage.

My dissertation studies how firm investments respond to market frictions such as corporate taxation, housing booms and how productivities and misallocations evolve in the adjustment processes. In the first chapter, I ask what factors contributed to the heterogeneous investment behavior of small and large firms' equipment investment in China's 2009 Value Added Tax (VAT) reform. I first document empirically that small firms responded more than large firms at both the extensive and intensive margins with a difference in differences design. Then I estimate a heterogeneous firm dynamic investment model and show it is investment adjustment costs, rather than financial frictions that contributed to small firms' more aggressive investment responses. To show the irrelevance of the financial constraints, I also estimate a Chinese version of the Whited Wu (2006) financial constraint index.

In the second chapter of my dissertation, I study how the three channels of housing boom: the collateral, the speculation and the crowding out channels affected US manufacturing firms' investment and misallocation over the early 2000s period. I find the traditional collateral channel was very significant during this period as documented by the literature. Both the speculation channel and the crowding out channel were silent . At the aggregate level, using the IV estimation backed by the housing supply elasticity in Saiz (2010), I find the housing boom had a positive effect on productivity growth and the collateral channel dominates the speculation channel and the crowding out channel.

In the last chapter of my dissertation studies how labor market frictions in Portugal contributed to its productivity slowdown and misallocation. The Portuguese government enacted several size-dependent labor market laws in 2012 and 2013 that favor small and medium-sized firms. I identify these laws as the sources of the increasing labor misallocations in Portugal with a difference in differences design. Moreover, I construct measures of labor market frictions using the average labor cost gap between small and large firms and then evaluate the effects of the size-dependent labor market laws on labor misallocation and reallocation. I find the size-dependent labor market laws reduced unemployment temporally but exacerbated within industry labor misallocation in the long run.

My dissertation seeks to enhance our understanding of how technology and fiscal policies shape firm behavior and implications for the aggregate economy and policy designs. In the first two chapters, I show empirically and quantitatively that information and communication technology (ICT) can widen firms’ geographic span of control by reducing internal communication costs. Combining comprehensive establishment-level datasets with ownership linkages, geographic locations, and ICT adoption, I document that firms with more advanced technology have both higher within-firm communication and larger geographic coverage. Exploiting natural experimental variation from the Internet privatization in the early 1990s, I show that better access to ICT helped firms expand geographically. Using a model where firms endogenously adopt ICT, choose multiple production locations, and trade domestically, I estimate that the Internet privatization increased overall efficiency by 1.1%. Compared to a trade-only model, a model with multi-unit firms predicts that efficiency gains are larger and more geographically dispersed. Policy counterfactuals show that to improve local welfare, a policy coordinated across locations that improves ICT access can be more effective than uncoordinated local policies.

The third chapter is joint work with Zhao Chen, Zhikuo Liu, Juan Carlos Suárez Serrato, and Daniel Xu. We study one of the largest tax reforms in China---the 2009 value-added tax reform that allowed firms to deduct input value-added tax from output tax and thus reduced user cost of capital for equipment investment. Using reduced-form analysis and a quantitatively firm investment model, we find that investment stimuli that shrink firms' inaction regions, such as value-added tax reduction and investment tax credits, are more effective: Given the same tax revenue loss, those policies lead to larger investment response.

My dissertation has four chapters. The first chapter is the introduction. The second chapter is my Ph.D. third-year paper (coauthored with Ming-Jen Lin and Yi-Ting Wang). The third chapter is my Ph.D. job market paper. The last chapter is the conclusion.Chapter 2 studies how liberalizing outward foreign direct investments (FDI) affects manufacturers’ engagement in global production and their domestic workers’ labor market outcomes. Focusing on a liberalization policy in 2001 by the government of Taiwan that allowed 122 electronic products to be produced in China, we estimate its effect on Taiwanese electronic manufacturers and their domestic workers. Employing a matched difference-indifferences strategy, we find that the manufacturers targeted by the policy were on average 16% more likely to invest in China relative to the non-targeted ones. Correspondingly, the domestic workers initially employed by the targeted manufacturers were on average more likely to change their jobs, stay employed for fewer years, and have lower wages in subsequent years relative to those employed by the non-targeted ones. The worker-level effects of the policy exhibited substantial heterogeneity across the initial wage distribution, with the top-decile workers benefiting and the other workers losing on average. Chapter 3 studies the welfare implications of the US–China trade war in Vietnam when foreign-owned manufacturers repatriate their profits. Utilizing an enterprise survey in Vietnam, I provide novel evidence that Vietnam’s positive responses in input sourcing, product export, and employment in 2017–2019 are driven mainly by foreign-owned manufacturers, especially Chinese manufacturers. To further understand the welfare gains of the trade war episode, I develop and estimate a quantitative model of trade participation with foreign ownership, where foreign-owned manufacturers do not retain their profits in the host country. A foreign demand shock to Vietnam of a magnitude similar to that of the trade war raises the real expenditure in the model by 5 percent, predominantly from an increase in labor income.