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Working Papers

Joint work with Junjie Xia

Job market paper

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This paper quantifies the change of the labor share in the aggregate revenue of Chinese manufacturing, mining, and public utilities when firms can use profit-maximizing amounts of capital and labor. This quantification takes into account heterogeneous productivity, technology, and demand elasticities across firms. Using parameters estimated from firm-level data, we find that removing the distortions and holding the aggregate labor and capital supply fixed would raise the labor share by 24 percentage points. This increase in the labor share is driven by a 57% increase in the wage.

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The paper is available here and the slides are here.

Joint work with Junjie Xia​

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Predicted total factor productivity (TFP) gains in China from removing the distortions in the allocation of production factors under Hsieh and Klenow (2009)'s framework are, in theory, sensitive to the assumption that demand elasticity is 3 for all the firms and that Chinese firms have the same technology as American firms. However, there is little empirical evidence on how the predicted TFP gains would change if these assumptions are relaxed. Using the framework developed by Zhang and Xia (2025), we find that the average demand elasticity is around 8 with large dispersion and that American firms are more capital-intensive than Chinese firms. 20% of the TFP gains found by Hsieh and Klenow (2009) are caused by replacing the Chinese production technology with US technology instead of distortions. Allowing heterogeneous demand elasticities reduces the predicted gains by about 60 percentage points.

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Presented at Tilburg Structural Econometrics Group, the GSS seminar at Tilburg University, the IO seminar at KU Leuven, the ENTER Jamboree, China International Conference in Macroeconomics, the IAAE annual conference, the AMES China meeting, and China Center for Economic Research’s Summer Institute, the NSE International Annual Workshop, the EEA-ESEM summer meeting.

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The paper is available here.

This paper estimates the impact of notched driving-range-based (DRB) subsidies to consumers on Chinese battery-electric-vehicle (BEV) manufacturers' incentives to reduce their production costs of driving ranges. Chinese consumers received generous subsidies if the driving ranges were above certain thresholds. Using a dynamic structural model to infer unobserved investment decisions on the cost reduction of driving ranges by manufacturers, I find that the discontinuous incentives around the range thresholds of Chinese DRB subsidies increased Chinese BEV manufacturers' probability of investing in reducing production costs of driving ranges in 2019 by up to 50 percentage points. Compared with counterfactual DRB subsidies that are linear in driving ranges and provide the same total amount of subsidy in 2019, the notched scheme induces lower investment probabilities but is a lot cheaper in future periods for the government. This dynamic impact on production costs implies that the environmental benefits and welfare gains of notched DRB subsidies are very likely larger than the estimates of existing literature. It also implies that notched subsidies can be used to induce technological adoption or product upgrading.

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Presented at the virtual IO CEPR event.

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The paper is available here.

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