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: France, a net importer of CO2 emissions, faces challenges in reducing the carbon footprint embedded in its imports. This paper examines the effects of a 2016 mandate requiring non-bank financial institutions in France to disclose the carbon footprint of their portfolios, which notably covers Scope 3 emissions stretching the entire supply chain of firms in which they invest. Utilizing a comprehensive panel dataset from 2012 to 2019 that includes confidential corporate tax returns and customs data, we analyze how manufacturing firms dependent on these institutions adjust their import practices in response to the mandate. Our findings indicate that financially constrained firms primarily reduce the volume of imports and their ratio of imports to inputs ratio. In contrast, financially unconstrained firms make operational adjustments without significant changes to import values but contract along their extensive margin of imports, reflecting strategic streamlining. Additionally, despite overall reductions in carbon embedded in imports, evidence of a shift to less carbon-intensive source countries or products remains weak. This paper highlights the varying impacts of enhanced environmental transparency in investment portfolios, providing insights into affected firms' operational and strategic responses in an international trade context.

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.