Domestic vs Foreign Superstars: Comparative Advantage, Pro-competitive Effects, and Productivity Spillovers Download

Abstract: Superstar firms are seen as catalysts of comparative advantage and competition. This paper challenges this perception using Chinese firm-level data from 1998 to 2007, revealing that superstar firm dominance had an average negative impact on industry export competitiveness up to at least 2003. Concentration into foreign-owned superstars, however, had a positive influence on industry exports throughout the period. Heterogeneity according to how an industry was poised for growth further indicates a story of convergence as the Chinese economy developed. The importance of differentiating superstar firms by ownership extends to the impact of their dominance on other firms operating in China, where FDI-driven concentration associates with broad pro-competitive effects in the sense of reduced markups. Lastly, this paper leverages an industry-specific shock to find unique and positive horizontal spillovers from the superstar component of FDI on the productivity of local firms. These findings offer valuable insights into key aspects of China’s successful industrial policy during the height of its export-led growth. They particularly underscore the significance of firm ownership when applying the literature on superstar firms to emerging economies.

The Influence of Comparative Advantage on FDI in China Download

Abstract: This paper examines the horizontal and vertical motives of FDI in China during the years 1998 to 2007. Utilizing international datasets on trade flows, tariffs, and transport costs alongside a detailed firm-level dataset, it achieves greater industry disaggregation than previous literature on the determinants of inward FDI in China. Results show over 2/3rds of Chinese industries undergoing significant dynamics in the main proxy for the vertical motive of FDI - revealed comparative advantage (RCA) estimated a la Costinot et al. (2012). GMM as well as a ``quasi-leave-one out" IV approach show that while the vertical motive of FDI dominates overall, horizontal motives are strong for non-HKMT (Hong Kong, Taiwan, Macau) FDI. Given that previous literature emphasizes the positive spillovers of non-HKMT FDI to local firms, these findings suggest that allowing domestic market access may be a vital prerequisite to such spillovers, i.e., not only export promotion. Further, horizontally motivated FDI also functions as an export platform, emphasizing the importance of minimizing trade barriers. Finally, China’s provincial-level RCA accounts for 1/4th of RCA’s association with FDI, and the positioning of provinces is divergent from one another, indicating a heterogeneous and dynamic landscape.

Financial Constraints: A Carbon Disclosure Mandate and Trade Outcomes (with Melanie Marten of CY Cergy Paris University).

Abstract: This paper investigates portfolio re-optimization within an international trade context, with regards to French institutional investors and asset managers' exposure to more stringent disclosure requirements on the carbon intensity of their investments, as well as new ESG reporting requirements placed on firms following the introduction of the Energy Transition for Green Growth Act in 2015. We use confidential corporate tax returns and customs data to employ an event study difference-in-differences approach to examine the effects of these stringent carbon and non-financial disclosure requirements on the borrowing capacity, performance, and carbon intensity of exports and imports of exposed firms, as a large share of manufacturing firm’s carbon intensity is through international trade. We focus on listed companies relative to unlisted companies as well as the intensity of bank debt to total debt and also total trade finance. Results indicate that the policy-induced greater financial constraints among exposed firms, with spillover effects on both their net income, the value of total imports, and the total imported carbon, but not the carbon intensity of remaining imports. The findings will provide a valuable contribution to policymakers in designing policies that encourage a low-carbon economy and in anticipating the effects of such regulation.

Motives of Firm Reliance on Trade Credit: Financial Constraints and Industry Competitiveness Across Countries (with Charles Zhiting Shen of IAE Paris).

Abstract: Trade credit, a form of inter-firm financing, is a significant source of funding in both emerging and advanced economies. This paper analyzes the impact of macroeconomic variables and firm-level characteristics on the structure of trade credit across a diverse set of economies in a dynamic setting with a particular focus on the role of industry comparative advantage. A key contribution of our study is identifying the effects of changes in industry comparative advantage on the use of accounts receivable at the firm level among manufacturing firms in emerging economies. We then take advantage of a negative trade shock on the Chinese solar industry to approach it from another angle relevant to interfirm financing as a source of short-term financial stability in place of banks. This research fills a significant gap in the existing trade credit literature where there is a lack of studies that use country-industry-specific metrics.