1. Foreign Entry, Competition and Heterogeneous Growth of Firms: Do We Observe ‘Creative Destruction’ in China? , with Gary Jefferson
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.
2. Research Centers and Technology Diffusion
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.
3. Inequality and Regional Productivity Convergence in China, with Gary Jefferson
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.
4. Can China Escape the Middle-Income Trap?: Productivity Catch-Up in China’s Manufacturing Sector, with Gary Jefferson
Abstract: China’s gap in industrial labor productivity with the United States has been steadily shrinking over recent decades. In this paper we examine the main sources of gap reduction and the potential for further catch-up. Using Chinese above-scale firm-level data during 1998-2007 period and BEA industry -level data in the US, we first document the respective rates of growth of labor productivity, gap reduction, and contributions to overall catch-up of China’s manufacturing sector during 1998-2007. We then aggregate the firm-level data to the 3-digit industry level to estimate a productivity gap reduction function and find that the key drivers for the productivity convergence are the initial technology gap, increased R&D spending, firm’s ownership restructuring, and industry level entry-exit ratio, a measure of competitive dynamism. A key finding is that the catch-up dynamic entails the break out of a small number of firms within each industry rather than catch-up of lagging firms. We then use these finding to investigate on-going patterns of catch-up during 2007 to 2011.
5. Value Investing or “Value Trap”?
manuscript available only upon request
Abstract: Not all contrarian investments worked out. Strategies simply based on low valuation often put investors into “value trap”. The value trap is the situation 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 multi-nomial model to estimate what characteristics of a stock contribute to a successful turnaround. Next, I investigate how the probabilities change over different time horizons for successful reversals. Finally, I show how “margin of safety”, the essence of value investing, contributes to the odds of escaping value trap. This research contributes to a systemic understanding of value investing philosophy.