This thesis is a collection of three essays on Chinese economy

Chapter 1 analyzes how comparative advantage can directly affect the allocation of activity across products within multi-product firms in a novel way. By constructing product-level comparative advantage index, we map a country’s comparative advantage into individual multi-product firms. We first document three basic facts. Firms’ product sales are skewed towards their comparative advantage products. Firms reduce (expand) their produce scope by dropping (adding) more comparative disadvantage products and shift sales towards (away from) comparative advantage products over time. In markets where they sell fewer products, firms concentrate on their comparative advantage products on both intensive and extensive margins. T...[ Read more ]

This thesis is a collection of three essays on Chinese economy

Chapter 1 analyzes how comparative advantage can directly affect the allocation of activity across products within multi-product firms in a novel way. By constructing product-level comparative advantage index, we map a country’s comparative advantage into individual multi-product firms. We first document three basic facts. Firms’ product sales are skewed towards their comparative advantage products. Firms reduce (expand) their produce scope by dropping (adding) more comparative disadvantage products and shift sales towards (away from) comparative advantage products over time. In markets where they sell fewer products, firms concentrate on their comparative advantage products on both intensive and extensive margins. To rationalize these facts, we extend Bernard, Redding, and Schott (2011) to include variable markups and comparative advantage. Our model predicts that firms’ core competence is in their comparative advantage products which also feature higher sales and higher markups. Increased competition from a positive demand shock or a appreciation of Home currency induces firms to drop their comparative disadvantage products on the extensive margin and shift their sales towards comparative advantage products on the intensive margin. The predictions are consistent with the documented facts and are confirmed by exploiting variations from the removal of MFA quotas on textiles and apparel industry and from exchange rate fluctuations.

Chapter 2 examines the effect of demand shocks in export markets on firm productivity and product mix. Using Chinese manufacturing firm data over 2000–2007, we find firms significantly increase productivity in response to positive demand shocks. A 10% increase in demand induces an increase of productivity by about 1%. This effect increases with export intensity and only exists among multi-product firms. We further show that firms skew their scales towards their best performing products in response to positive demand shocks and there exists a strongly positive correlation between changes of sales concentration and changes of productivity. Our paper gives support to Mayer, Melitz, and Ottaviano (2016) where productivity changes come from product mix reallocations induced by increased competition from demand shocks.

Chapter 3 studies the internal organization of Chinese manufacturing firms using a unique matched employer-employee survey data. Employees of each firm are divided into four layers: high-level managers, middle-level managers, white-collar workers, and blue-collar workers. We have several import findings. Firstly, firms with more layers are larger, pay higher wages, and form hierarchies; workers in upper layers perform more complicated, labor-intensive, repetitive tasks, supervise more subordinates, and earn more. Secondly, the assignment of employees features scale of operations effects, positive assortative matching, cross-matching, and stratification. Thirdly, both the wage gaps between managers and workers within firms and the wage gaps between firms due to firm size increase with spans of control. Our results give support to matching models with hierarchical production functions.