WORKING PAPER
1. Sacrifice for the Greater Good? Welfare and Distributional Impacts of Flood Detention Basins (FDBs) in China
Honorable Mention, 2024 Asian Development Bank - International Economic Association Innovative Policy Research Award
Presentations (including scheduled): Warwick-Monash AYEW, LSE EEE Camp, AERE Annual Meeting, EAERE Workshop, UEA (European Meeting, and Summer School), Econometric Soceity (Asia, EEA-European Summer, and North America Summer Meeting), Harvard Kennedy School, CES Annual China Conference, and JEEM Workshop (Data, Information and Environment)
Abstract: This paper studies the distributional and welfare impact of a unique large-scale natural disaster management policy in China, the Flood Detention Basin (FDB) policy. Since 2000, 96 pre-designated FDB counties have been deliberately inundated for more than 100 times to protect a broader region. Our study addresses two aspects of this policy: (i) the economic costs on FDB counties; and (ii) the net welfare gain brought to the whole economy. Using a difference-in-differences approach, we find that the policy results in an annual loss of approximately US$10billion in real GDP for FDB counties. Our partial equilibrium model emphasizes the `firm response effect,' indicating that firms are hesitant to enter and invest in FDB counties due to increased risk. Consistent with model implications, we find that firm entry decreases by around 20% if a county gets selected into the FDB list. Using detailed firm-level financial and location data, our spatial regression discontinuity analysis reveals an approximate 20% reduction in fixed asset investment in FDB counties compared to neighboring non-FDB counties. In a spatial general equilibrium setting, we construct a counterfactual scenario without FDB policy to assess the welfare implication of this policy. We find that the policy leads to an annual \textit{net} increase in output of around US$10billion in Huai River Basin.
Honorable Mention, 2024 Asian Development Bank - International Economic Association Innovative Policy Research Award
Presentations (including scheduled): Warwick-Monash AYEW, LSE EEE Camp, AERE Annual Meeting, EAERE Workshop, UEA (European Meeting, and Summer School), Econometric Soceity (Asia, EEA-European Summer, and North America Summer Meeting), Harvard Kennedy School, CES Annual China Conference, and JEEM Workshop (Data, Information and Environment)
Abstract: This paper studies the distributional and welfare impact of a unique large-scale natural disaster management policy in China, the Flood Detention Basin (FDB) policy. Since 2000, 96 pre-designated FDB counties have been deliberately inundated for more than 100 times to protect a broader region. Our study addresses two aspects of this policy: (i) the economic costs on FDB counties; and (ii) the net welfare gain brought to the whole economy. Using a difference-in-differences approach, we find that the policy results in an annual loss of approximately US$10billion in real GDP for FDB counties. Our partial equilibrium model emphasizes the `firm response effect,' indicating that firms are hesitant to enter and invest in FDB counties due to increased risk. Consistent with model implications, we find that firm entry decreases by around 20% if a county gets selected into the FDB list. Using detailed firm-level financial and location data, our spatial regression discontinuity analysis reveals an approximate 20% reduction in fixed asset investment in FDB counties compared to neighboring non-FDB counties. In a spatial general equilibrium setting, we construct a counterfactual scenario without FDB policy to assess the welfare implication of this policy. We find that the policy leads to an annual \textit{net} increase in output of around US$10billion in Huai River Basin.
2. In the Shadow of Rainbow: Is Sexual Orientation Wage Gap Disappearing in the United States?
Presentations: AEA/ASSA annual conference, SEA annual conference, APPAM annual conference, and LBS-TADC
Abstract: The sexual orientation raw wage gap for male homosexual workers in the United States has been narrowing at the mean level. This paper, however, finds that the narrowing average wage gap does not indicate a disappearing wage gap across the income distribution, nor does it imply an elimination of discrimination. Based on a quantile-level Oaxaca-style decomposition, we find that homosexual male workers should have earned 10-15% more than their heterosexual counterparts because of their advantage in human capital. However, the unequal reward structure in the labor market diminishes the impact of human capital advantage on the overall wage gap. Using 2008-2021 ACS data, across the income distribution, we find that the wage surplus is 1% for high-income level, as opposed to a 13% surplus at the low-income level, indicating that high-income homosexual male workers are more difficult to transform their human capital advantage to income advantage. Strikingly, we find the difference between high-income and low-income homosexual workers more pronounced in female-dominated occupations. Through a theoretical framework that incorporates the decision of self-disclosure, we consider the key role of disclosing sexual orientation identity in occupations of different gender compositions.
Presentations: AEA/ASSA annual conference, SEA annual conference, APPAM annual conference, and LBS-TADC
Abstract: The sexual orientation raw wage gap for male homosexual workers in the United States has been narrowing at the mean level. This paper, however, finds that the narrowing average wage gap does not indicate a disappearing wage gap across the income distribution, nor does it imply an elimination of discrimination. Based on a quantile-level Oaxaca-style decomposition, we find that homosexual male workers should have earned 10-15% more than their heterosexual counterparts because of their advantage in human capital. However, the unequal reward structure in the labor market diminishes the impact of human capital advantage on the overall wage gap. Using 2008-2021 ACS data, across the income distribution, we find that the wage surplus is 1% for high-income level, as opposed to a 13% surplus at the low-income level, indicating that high-income homosexual male workers are more difficult to transform their human capital advantage to income advantage. Strikingly, we find the difference between high-income and low-income homosexual workers more pronounced in female-dominated occupations. Through a theoretical framework that incorporates the decision of self-disclosure, we consider the key role of disclosing sexual orientation identity in occupations of different gender compositions.
3. Unintended Impacts of Subsidizing Robots in China: An Empirical Investigation (with Runhong Ma)
Presentations: LSE Macro Seminar
Abstract: This study examines the effects of a robotic subsidy policy in China's manufacturing sector, focusing on a demand-side subsidy aimed at encouraging manufacturing companies to invest in robotics by lowering the cost of purchase. Utilizing a synthetic difference-in-difference methodology, our analysis reveals varied impacts on manufacturing enterprises of different scales at the municipality level. Initially, we observe a 15.9% decline in the entry of new firms post-policy implementation, suggesting that the facilitated access to robotics has not transformed into a motivation for new business entries. Secondly, the policy has advantaged larger manufacturing entities, evidenced by approximately a 5% increase in their total assets, revenue, and employment following the policy's introduction. These findings suggest that the subsidy policy has led to increased market concentration. In interpreting the mechanism, we build a theoretical model that incorporates financial frictions into a task-based framework. For financially constrained manufacturing firms, their optimal automation level differs from the efficient level. Hence, the policy will disproportionately benefit firms without financial constraints, leading to a market concentration.
Presentations: LSE Macro Seminar
Abstract: This study examines the effects of a robotic subsidy policy in China's manufacturing sector, focusing on a demand-side subsidy aimed at encouraging manufacturing companies to invest in robotics by lowering the cost of purchase. Utilizing a synthetic difference-in-difference methodology, our analysis reveals varied impacts on manufacturing enterprises of different scales at the municipality level. Initially, we observe a 15.9% decline in the entry of new firms post-policy implementation, suggesting that the facilitated access to robotics has not transformed into a motivation for new business entries. Secondly, the policy has advantaged larger manufacturing entities, evidenced by approximately a 5% increase in their total assets, revenue, and employment following the policy's introduction. These findings suggest that the subsidy policy has led to increased market concentration. In interpreting the mechanism, we build a theoretical model that incorporates financial frictions into a task-based framework. For financially constrained manufacturing firms, their optimal automation level differs from the efficient level. Hence, the policy will disproportionately benefit firms without financial constraints, leading to a market concentration.
4. Foreign Aid Famine and Fiscal Capacity in post-Cold War Africa
Presentations: LSE SPEECH, LSE Development Seminar
Abstract: Foreign aid decreased sharply in Africa after the Cold War due to donor's shift of political emphasis. In the post-Cold War environment, some SSA countries (e.g., Gabon) entered an aid-famine period because of the change in global geopolitical relation, an exogenous shock independent of domestic conditions. Given this quasi-natural experiment, I study the impact of aid famine on fiscal capacity in African countries based on synthetic control approach and difference in difference approach. Empirical results suggest that overall tax did not increase significantly when a county entered an aid-famine period. Instead, country's reliance on trade tax increased.
Presentations: LSE SPEECH, LSE Development Seminar
Abstract: Foreign aid decreased sharply in Africa after the Cold War due to donor's shift of political emphasis. In the post-Cold War environment, some SSA countries (e.g., Gabon) entered an aid-famine period because of the change in global geopolitical relation, an exogenous shock independent of domestic conditions. Given this quasi-natural experiment, I study the impact of aid famine on fiscal capacity in African countries based on synthetic control approach and difference in difference approach. Empirical results suggest that overall tax did not increase significantly when a county entered an aid-famine period. Instead, country's reliance on trade tax increased.
SELECTED WORK IN PROGRESS
5. Trapped in Flood? Migration Decisions in Response to Floods in China (with Runhong Ma)
6. Greenizing the Dirty Industry and Pollution in China
6. Greenizing the Dirty Industry and Pollution in China