Working Papers

“Foreign Entry, Competition and Heterogeneous Growth of Firms: Do We Observe 'Creative Destruction' in China? ”

with Gary Jefferson

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Abstract:   In the face of foreign entry, domestic firms may exhibit heterogeneous pattern of responses depending on their technological distance from foreign firms. Domestic firms closer to the foreign technology frontier may choose to compete, while firms that are further down on the technology ladder may suffer a “discouragement effect” and lag further behind.  In this paper, we test the Schumpeterian idea of “creative destruction” using firm-level data from China’s Large and Medium-Size Enterprise (LME) dataset. We find that foreign entry indeed has a heterogeneous impact on the productivity growth of domestic incumbents. Furthermore, we offer evidence that foreign-entry also induces a similar heterogeneous pattern in domestic firms’ innovation-related activities. 

“Research Centers and Technology Diffusion”

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Abstract:   Much of the debate over income convergence hinges on whether technology diffusion is “global” or “local”.  In this paper, I tackle this question in a developing country setting and focus on the role of research centers in promoting domestic technology diffusion.  I identify four de facto research centers in China and investigate whether the effect of R&D spillovers from research centers is related to both geographic and technological distances.  I find that firms’ productivity gains from R&D spillovers at the research center decline with (i) increasing physical distance away from research centers, and (ii) the technological gap between technology senders and recipients.

“Inequality and Regional Productivity Convergence in China”

with Gary Jefferson

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Abstract:   This paper compares China’s labor productivity growth across different regions and industries, and investigates how the initial productivity gaps with the international frontier affect their subsequent productivity growth. The research yields overwhelming empirical evidence that during the period of 1995-2004 China has experienced a rapid convergence in productivity growth across regions: the interior regions that are farther away from international frontier have grown much faster than the coastal region that is closer to the productivity frontier. Such growth patterns offer policy-makers a rare opportunity simultaneously to narrow the income gap while maintaining a high growth rate overall.

“Value Investing or Value Trap?”

Abstract:   Past research on contrarian investing focused on the mean-reversion nature of stock returns and a simple buy-low and sell-high strategy is often advocated.  However, not all contrarian investments worked out and strategies that are simply based on lower valuation often put investors into “value trap”, where stocks go down even further or their values get completely wiped out.  This paper tackles the question of what makes a sensible contrarian investment.  I first use a multinomial model to estimate what characteristics contribute to a successful turnaround of the undervalued stocks.  Next, I investigate how the probabilities change over different time horizons for successful reversals.  This research contributes to the deeper understanding of a very popular investment strategy.