Research

 

 

A. Publications in Refereed Journals 

B. Working Papers

C. Books and Book Chapters

D. Selected Work in Progress

E. Selected Journal Articles in Chinese

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A. Publications in Refereed Journals:

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Trade Liberalization, Quality, and Export Prices, with Haichao Fan and Stephen Yeaple. Review of Economics and Statistics, December 2015, Vol. 97, No. 5, pp. 1033-1051. [PDF download] [Online appendix] [Data and Program]

(Earlier version available as NBER Working Paper No. 20323, July 2014.)

Citation: Fan, Li, and Yeaple (2015) [BibTex]
Fan, Haichao, Yao Amber Li, and Stephen Yeaple (2015).
Trade Liberalization, Quality, and Export Prices. Review of Economics and Statistics, December 2015, Vol. 97, No. 5, pp. 1033-1051.   

Abstract:
This paper presents theory and evidence from highly disaggregated Chinese data that tariff reductions induce a country's producers to upgrade the quality of the goods that they export. The paper first documents two stylized facts regarding the effect of trade liberalization on export prices and its relation with product differentiation. Next, the paper extends Melitz's (2003) model of trade with heterogeneous firms by introducing endogenous quality choice. The model predicts that a reduction in the import tariff induces an incumbent importer/exporter to increase the quality of its exports and to raise its export price in industries where the scope for quality differentiation is large while to lower its export price in industries where the scope for quality differentiation is small. The predictions are consistent with the stylized facts based on Chinese data and robust to various estimation specifications.

Keywords: trade liberalization, tariff, quality, export price, quality upgrading
JEL Classification:
F12, F14

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On the Relationship Between Quality and Productivity: Evidence from China¨s Accession to the WTO, with Haichao Fan and Stephen Yeaple, 2017. conditionally accepted, Journal of International Economics. [PDF download]
Available as NBER working paper No. 23690, August 2017.  
 

Abstract:
This paper presents an analysis of the effect of China's entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China's tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports toward high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks' neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading.
Keywords: trade liberalization, tariff, export price, productivity, quality upgrading, quality differentiation, product heterogeneity
JEL Classification: F12, F14

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Credit Constraints, Quality, and Export Prices: Theory and Evidence from China, with  Haichao Fan and Edwin Lai. Journal of Comparative Economics, May 2015, Volume 43, Issue 2, pp. 390-416. [PDF download]

Citation: Fan, Lai, and Li (2015) [BibTex]
Fan, Haichao, Edwin L.-C. Lai, and Yao Amber Li (2015).
Credit Constraints, Quality, and Export Prices: Theory and Evidence from China. Journal of Comparative Economics, May 2015, Volume 43, Issue 2, pp. 390-416.  
ISSN 0147-5967, http://dx.doi.org/10.1016/j.jce.2015.02.007.  
(Earlier version available as CESifo Working Paper No. 4370, August 2013.)

Abstract:
This paper presents theory and evidence from highly disaggregated Chinese data that tighter credit constrains force firms to produce lower quality. The paper modifies Melitz's (2003) model of trade with heterogeneous firms by introducing quality choice and credit constraints. The quality sorting model predicts that tighter credit constraints faced by a firm reduce its optimal prices due to its choice of lower-quality products. However, when quality cannot be chosen by a firm in an efficiency sorting model, there is an opposite prediction that prices increase as firms face tighter credit constraints. An empirical analysis using Chinese bank loans data and a merged sample of large trading firms based on Chinese firm-level data from the National Bureau of Statistics of China (NBSC) and Chinese customs data strongly supports quality sorting and confirms the mechanism of quality adjustment: firms optimally choose to produce lower-quality products when facing tighter credit constraints. Moreover, the predictions of the efficiency sorting model are supported by using quality-adjusted prices in regression analysis and by using quality variation across firms within the same product.
JEL Classification: F1, F3, D2, G2, L1
Keywords: credit constraints, China, credit access, credit needs, quality, export prices, heterogeneous firms

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Borders and Distance in Knowledge Spillovers: Dying over Time or Dying with Age? C Evidence from Patent Citation, European Economic Review, October 2014, volume 71, pp. 152-172. [PDF download]  

Citation: Li (2014) [BibTex]
Li, Yao Amber (2014). Borders and Distance in Knowledge Spillovers: Dying over Time or Dying with Age? C Evidence from Patent Citations. European Economic Review, October 2014, volume 71, pp. 152-172. ISSN 0014-2921, http://dx.doi.org/10.1016/j.euroecorev.2014.07.005.   

Earlier version available as CESifo Working Paper Series No. 2625.

Abstract:
This paper explores the effects of distance as well as subnational and national borders on international and intranational knowledge spillovers through patent citations across the 39 most patent-cited countries and 319 metropolitan statistical areas (MSAs) within the U.S. In contrast to previous findings that knowledge localization fades over time, border and distance effects increase over time for the same-age citations. This increasing effect of borders and distance is associated with strengthened knowledge agglomeration over time. Nevertheless, both border and distance effects decrease with the age of patents. Aggregate border effects are often overestimated due to various aggregation bias. Moreover, business travels and knowledge quality effectively attenuate the effect of subnational borders in knowledge flows.

Keywords:  Border effect; Distance; Gravity; Knowledge spillovers; Patent citations
JEL Classification:
F1, F2, O3, R1, R4

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Trade liberalization and markups: Micro evidence from China, with  Haichao Fan, Xiang Gao and Tuan Anh Luong. Journal of Comparative Economics, 2017. [PDF download]

Citation: Fan, Gao, Li, and Luong (2017) [BibTex]
Fan, Haichao, Xiang Gao, Yao Amber Li, and Tuan Anh Luong (2017).
Trade liberalization and markups: Micro evidence from China. Journal of Comparative Economics. https://doi.org/10.1016/j.jce.2017.02.002   
 

Abstract:
This paper presents evidence from highly disaggregated Chinese firm-product data that, given productivity, input tariff reductions induce an incumbent importer/exporter to increase product markups. We further investigate empirically the mechanisms underlying this trade liberalization effect, and find that input tariff reductions decrease marginal costs, and their effects on markup adjustments are more profound among firms with higher import dependence. Moreover, we exploit unique features of Chinese data by comparing results for two trade regimes: ordinary trade (wherein firms pay import tariffs to import) and processing trade (wherein firms are not subject to import tariffs). While the aforementioned trade liberalization effects and mechanisms only apply to ordinary trade, processing trade samples are used in a placebo test. The paper also shows that more productive firms charge higher markups for products. All these findings are robust to alternative markup measures including one estimate using physical-quantity output data, different production function specifications, a subsample consisting only of pure exporters, and estimations based on our theoretical derivations.
JEL Classification: F1, F4, O4
Keywords: Tariff reduction; Markup; Marginal cost; Ordinary trade

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Price Adjustment to Exchange Rates and Forward-looking Exporters: Evidence from U.S.-China Trade, with  Chen Carol Zhao. Review of International Economics, November 2016, Volume 24, Issue 5, Pages 1023C1049. [PDF download]        

Earlier version available as HKUST IEMS Working Paper No. 2015-28, July 2015, titled "Forward-Looking Exporter and Exchange Rate Pass-Through: A Micro-Level Investigation". 

Citation: Li and Zhao (2016) [BibTex]
Li, Yao Amber and Chen Carol Zhao (2016). Price Adjustment to Exchange Rates and Forward-looking Exporters: Evidence from U.S.-China Trade. Review of International Economics, November 2016, Volume 24, Issue 5, Pages 1023C1049.

Abstract:
This paper shows that the pricing behavior of exporting firms exhibits a ^forward-looking ̄ nature with sticky prices. As a result, the expectations of future exchange rates affect current prices at both the product level and firm level. We find evidence by employing both highly disaggregated Harmonized System (HS) 10-digit product-level import data of the USA and firmCproduct level customs data on China's exports to the USA. These findings provide evidence for a previously unexplored micro-level forward-looking nature of trade price adjustment as response to future exchange rates, and suggest a potentially important factor in helping explain incomplete exchange rate pass-through.

Keywords: Price adjustment; Customs data; Exchange rates; Forward exchange rates; Forward-looking; Sticky price; Exchange rate pass-through

JEL code:  F14, F3

 

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The Higher Educational Transformation of China and Its Global Implications, with John Whalley, Shunming Zhang, and Xiliang Zhao. The World Economy, April 2011, Vol 34(4), pp. 516-545. [PDF download]

Citation: Li, Whalley, Zhang, and Zhao (2011) [BibTex]
Li, Yao Amber, John Whalley, Shunming Zhang, and Xiliang Zhao (2011). "The Higher Educational Transformation of China and Its Global Implications," World Economy, April 2011, Vol 34(4), pp. 516-545.
(Earlier version available as NBER Working Paper No. 13849, March 2008.)

Abstract:
This paper documents the major transformation of higher education that has been underway in China since 1999 and evaluates its potential global impacts. Reflecting China's commitment to continued high growth, this transformation focuses on major new resource commitments to tertiary education and significant changes in organizational form. All of these changes have already had large impacts on China's higher educational system and are beginning to be felt by the global educational structure. There are also implications for global trade both directly in ideas, and in idea derived products. This focus on tertiary education differentiates the Chinese case from other countries who instead stressed primary and secondary education at similar stages of development.

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Credit Constraints and Firm Productivity: Microeconomic Evidence from China, with  Wei Liao and Chen Carol Zhao. Review of International Business and Finance, 2017. [PDF download]

Citation: Li, Liao and Zhao (2017)
Yao Amber Li, Wei Liao, Chen Carol Zhao, Credit constraints and firm productivity: Microeconomic evidence from China, Research in International Business and Finance, 2017.
ISSN 0275-5319, https://doi.org/10.1016/j.ribaf.2017.07.142. (http://www.sciencedirect.com/science/article/pii/S0275531917301745)
 

Abstract:
We use a panel of over 600,000 Chinese firms (1998C2009) to investigate the effects of credit constraints on firm productivity. We find that both internal finance through a firms own cash flow and external credit supply significantly promote firm productivity and productivity growth rates. Specially, there is a substitution effect between internal finance and external credit supply: the marginal effect of internal finance on firm productivity is weaker when firms have sufficient external credit. Also, internal finance is more important for firms in those financially vulnerable industries. Finally, we observe that marginal effect of both external credit supply and internal finance on firm's productivity is weaker for SOEs than non-SOEs.
JEL Classification: O1; G2; D24
Keywords: TFP; TFP growth rate; Credit constraint; Internal financing; External finance dependence; Financial market development

 

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B. Working Papers:

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Geography, Ties, and Knowledge Flows: Evidence from Citations in Mathematics, with Keith Head and Asier Minondo. Revise and Resubmit, Review of Economics and Statistics. Online Appendix: [Annex 1] [Annex 2]

Abstract:
Using data on academic citations, career and educational histories of mathematicians, and disaggregated distance data for the world's top 1000 math departments, we study how geography and ties affect knowledge flows among scholars. The ties we consider are coauthorship, past colocation, advisor-mediated relationships, and alma mater relationships (holding a Ph.D. from the institution where another scholar is affiliated). Logit regressions using fixed effects that control for subject similarity, article quality, and temporal lags, show linkages are strongly associated with citation. Controlling for ties generally halves the negative impact of geographic barriers on citations. Ties matter more for less prominent and more recent papers and show no decline in importance in recent years. The impact of distance (controlling for ties) has fallen and is statistically insignificant after 2004.
Keywords: network, distance, border, geography, knowledge flows, academic citations, genealogy, matching
JEL Classification: O3, F1, R1

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Margins of Imports, Forward-Looking Firms, and Exchange Rate Movements, with Haichao Fan and Chen Carol Zhao. Revised and Resubmitted at Journal of International Money and Finance.

Abstract: This paper presents theory and evidence on firm's import responses to current and future exchange rates along both intensive and extensive margins. The paper first builds a dynamic heterogeneous- firm model to study how firms adjust their import decision by taking into account of both current and future exchange rates. In the model, individual firms pay a fixed sunk cost and face a probability of failure when searching for foreign intermediate suppliers. The impact of future exchange rate on import is different from that of current exchange rate: spot exchange rate appreciation would increase both the intensive margin (import value of individual rm) and the extensive margin (the number of importing firms), while future exchange rate appreciation increases the extensive margin rather than the intensive margin of imports. The model predictions are strongly supported by an empirical analysis using disaggregated data on China's imports from the United States and forward rates between US Dollar (USD) and Chinese Yuan (CNY) on the non-deliverable exchange market.
JEL: F31, F14, F12, F41.

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International Trade, Technology Diffusion, and the Role of Diffusion Barriers Revised in Feb 2017.  Revise&Resubmit, Canadian Journal of Economics.

Abstract:
This paper assesses the welfare impact of trade and technology diffusion as well as the change in the cross-country distribution of GDP due to removal of trade costs and diffusion barriers. The model extends the multi-country Ricardian trade model of Alvarez and Lucas (2007) to include technology diffusion with diffusion barriers. A key feature of the model is that some countries export goods produced by foreign technology via diffusion. The model is calibrated to match the world GDP distribution, the merchandise trade and technology diffusion shares of GDP, and real GDP per capita for a sample of 31 countries. Data on international trade in royalties, license fees, and information intensive services are used as proxies for international technology diffusion. There are three key findings. First, the welfare gains from removing diffusion barriers are 4--60% across countries, generally larger than the gains from removing trade costs (8--40%). The main reason is that diffusion has a larger impact on the nontradable sector due to the substitutability between trade and diffusion in the tradable sector. Another reason is that diffusion barriers are generally larger than trade costs. Second, removing trade costs and diffusion barriers has little impact on reducing the dispersion of real GDP per capita (measured by Gini index) across countries. Compared to the benchmark, free diffusion decreases the Gini by 4%, and free trade decreases the Gini by 2%. Third, removing diffusion barriers increases trade, which indicates that diffusion may enhance trade.
Keywords: trade, technology diffusion, diffusion barriers, trade costs, welfare gains, GDP distribution, knowledge trade
JEL Classification: F15, F17, O11, O33, O40

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Credit Distribution and Export: Evidence from China, with Albert Park and Chen Carol Zhao. Revised in November 2016. Revise and Resubmit, Journal of Comparative Economics.

Abstract:
This paper explores how credit distribution among firms within an industry affects the industry's export intensity (export-to-sales ratio) and export propensity (the ratio between number of exporters and total number of firms). Based on heterogeneous-firm trade model, we derive two opposing hypotheses: for industries with relatively small foreign market penetration costs, more dispersed credit distribution decreases the industry's export intensity and number of exporters; conversely, for industries with relatively high foreign market penetration costs, the dispersion of credit supply increases export intensity and number of exporters. We test the two hypotheses with Chinese firm-level data and Chinese bank loan data. The empirical results support both hypotheses and confirm significant heterogeneous impacts of credit distribution on exports across different industries.
JEL Classification: F14, G20, L60
Keywords: credit constraints, credit supply, financial development, credit distribution, heterogeneous firms, international trade, liquidity

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Growth Policy, Agglomeration, and (the Lack of) Competition", with Wyatt Brooks and Joseph Kaboski, NBER working paper No. 22947, December 2016. under review.

Abstract:
Industrial clusters are promoted by policy and generally viewed as good for growth and development, but both clusters and policies may also enable non-competitive behavior. This paper studies the presence of non-competitive pricing in geographic industrial clusters. We develop, validate, and apply a novel test for collusive behavior. We derive the test from the solution to a partial cartel of perfectly colluding firms in an industry. Outside of a cartel, a firm's markup depends on its market share, but in the cartel, markups across firms converge and depend instead on the total market share of the cartel. Empirically, we validate the test using plants with common owners, and then test for collusion using data from Chinese manufacturing firms (1999-2009). We find strong evidence for non-competitive pricing within a subset of industrial clusters, and we find the level of non-competitive pricing is about four times higher in Chinese special economic zones than outside those zones.

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Coagglomeration of MNEs in Service and Manufacturing Industries: Recent Evidence from China, with Jin Zhang, Revise&Resubmit, Journal of Economic Geography.

Abstract:
We test different agglomerative forces in the coagglomeration patterns of service multinational enterprises (MNEs) and investigate how they compare with and relate to the coagglomeration of manufacturing MNEs using Chinese firm-level data. We find that the coagglomeration of service MNEs is largely driven by output similarity (shared customers), followed by knowledge spillovers. In contrast, labor market pooling is the most important driving force for the coagglomeration of manufacturing MNEs, followed by input similarity (shared suppliers). Meanwhile, knowledge spillovers facilitate coagglomeration between MNEs in two industries within the same sector, but not across sectors.

JEL Classification:
R12, F23, L80, L60, O14, O53, O57

Keywords: coagglomeration, agglomeration, China, service
 

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Sources of Relatedness between Industries and Revealed Comparative Advantage: Evidence from China, with Linke Zhu, revised in July 2017.

Abstract:
This paper presents empirical evidence from disaggregated Chinese industrial data (1998-2009) to uncover how the revealed comparative advantage (RCA) of an industry in a region is affected by the relatedness between industries. We quantify relatedness and employ a density measure built upon proximities between industries developed by Hidalgo et al. (Science, 2007). We further decompose the sources of relatedness into four mechanisms: input linkage, output linkage, labor market pooling, and knowledge spillovers. To address the identification issue, we employ the interaction between nationwide industry-level FDI policy and regional industrial structure in China to further test the mechanisms of industry relatedness and their impacts on RCA.

There are three main findings. First, all four sources of relatedness significantly increase the future probability of an industry to have RCA in that region, and the future RCA of an industry is mostly driven by its relatedness with other local industries regarding labor pooling and knowledge spillovers. Second, industries with higher capital or skill intensity benefit more from being located in the same region with other industries using similar labor, while benefit less from knowledge spillover from other local industries. In other words, the effect of knowledge spillover for capital or skill intensive industry is much smaller than that for labor intensive industries. Third, the aforementioned findings are further confirmed by the tests using FDI policies in China: FDI encouragement policies tend to be more successful in regions with higher labor pooling density, but less successful in regions with higher knowledge spillover density. Our results are robust to alternative measures of labor pooling density, different aggregation level of regions, and controlling for endowment driven comparative advantage.
Keywords: relatedness, revealed comparative advantage, FDI, industrial upgrading, industrial dynamics, China, input-output, labor market pooling, knowledge spillover

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Import response to exchange rate fluctuations: A micro-level investigation, with Jenny Xu and Chen Carol Zhao. Revised in Feb 2017, under review.

Abstract:
This paper presents theory and evidence on firms' import responses to exchange rate fluctuations using highly disaggregated data of Chinese imports from OECD countries. The paper first develops a heterogeneous-firm trade model and predicts firms' import responses at both the extensive and intensive margins: when domestic currency appreciates, more firms start importing and more products are added into the imported inputs bundle (extensive margin effect), and the import value by each firm also increases (intensive margin effect). The model also predicts that those import responses are more profound for firms in ordinary trade than for those in processing trade. Next, the paper empirically investigates firms' import responses to exchange rate fluctuations at extensive and intensive margins in both the short run and the long run, and all the model predictions are confirmed. The predicted pattern is more robust in the long run than in the short run. We also find variations among import responses under different exchange rate regimes (including a fixed exchange rate regime, an expected appreciation regime, and a confirmed appreciation regime). Finally, we investigate the exchange rate pass-through to import prices and find that incomplete pass-through has declined.
Keywords:
exchange rate, import, extensive margin, intensive margin, processing trade, exchange rate regimes, pass-through
JEL code: F14, F31


 

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Approaches to Fostering Productivity Growth in Brazil, China and India, with Manmohan Agarwal and John Whalley, CIGI Working Paper No. 47, April 2010. (in stasis)

 

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C. Books and Book Chapters:

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Agarwal, Manmohan, Yao Amber Li, and John Whalley (2015), "Innovation and Technology Transfer Policies in China, India, and Brazil," In Manmohan Agarwal and John Whalley (Eds), World Scientific Reference on Asia and the World Economy, Vol 2, India and China: Comparative Experience and Prospects, World Scientific Publishing, Singapore, May 2015, Volume 2, chapter 22, pp171-201. doi: 10.1142/9789814578622_0020

Citation: Agarwal, Li, and Whalley (2015) [BibTex]

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Li, Yao Amber, John Whalley, Shunming Zhang, and Xiliang Zhao (2012), "China's higher education transformation and its global implications," In Christine T. Ennew and David Greenaway (Eds), The Globalization of Higher Education, Palgrave Macmillan, Hampshire, UK, 2012, pp135-162.

 

 

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D. Selected Work in Progress:

  • "Multinational Technology Linkage: An Empirical Study of Taiwanese Parent Firms and Their Affiliates in China", with Loretta Fung and Jin-Tan Liu
  • "Agglomeration and Competition", with Wyatt Brooks and Joseph Kaboski

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E. Selected Journal Articles in Chinese:

佚Js崩ιa楕c竃笥r鯉P狼議唹, with 勲今咳 and 甑高h, 弊順(The Journal of World Economy), 2015定12豚.  [PDF download]  

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