“Running out of Steam? A Political Incentive Perspective of FDI Inflows in China” (with Shuo Chen, Xiaowei Rose Luo, and Danqing Wang), 2020, Journal of International Business Studies. [Link]
Drawing on the sociological literature of state bureaucracy, we develop a political incentive perspective on FDI inflows. We argue that political term, as a core feature of career advancement in state bureaucracy, influences the incentives of newly appointed government officials and in turn their efforts toward achieving the state’s goal of attracting FDI. We test this argument by examining Chinese city government leaders and FDI inflows in their cities from 2003 to 2010, using a difference-in-differences design. The results show that first-term leaders, who are newly appointed after political turnover, attract more FDI inflows than continuing leaders. The difference is smaller when the new leaders are close to retirement, but greater if they are appointed to cities with low prior GDP performance.
How can principals incentivize agents’ efforts while maintaining personnel flexibility? We show that creating a "promotion club" solves a large part of the problem: the principal selects, from n agents, m top-performing agents into a club, and then promotes one from within this club based on the principal's idiosyncratic preferences ("mindset"). Intuitively, m=1 indicates a tournament, and m=n, cronyism. A proper (m>1) promotion club outperforms tournament when there are many homogenous agents, and when there are strong intra-crony competitions among heterogeneous agents. We use promotion data from Chinese governments at different levels to validate the model and test its predictions.
“Chasing or Cheating? Theory and Evidence on the Reliability of China’s GDP” (with Shuo Chen, and Xue Qiao), 2020, Revision and Resubmission at Journal of Economic Behavior and Organization.
China’s GDP has been questioned a lot for its reliability. This paper enquires how local officials’ promotion incentive could lead to data manipulation that contributes to GDP’s unreliability. Using satellite nightlight data to estimate the “true” GDP and manipulated GDP, we find that both real (chasing) effort and cheating effort are higher in counties with officials who are in the first term of their tenure than counties with officials who are in the second term, where the former expects a higher promotion chance than the latter. Furthermore, cheating mainly comes form by officials who are under weaker accountability. These results are consistent with the model predictions. Moreover, the results suggest that the praised merit-based promotion system in China may inadvertently aggravate information distortion problem.
“Gone with The Wind? Wind Directions, Power Plants and Public Health in China” (with Shuo Chen, Yiran Li, and Guang Shi), 2020, Revision and Resubmission at China Economic Review.
Based on a nationwide representative county-level dataset from China, this paper empirically examines the spillover effects of air pollution from neighboring coal-fired power plants on local mortality rates due to cardiovascular and respiratory diseases. We combine data on power plants’ industrial output with information on wind direction and speed to proxy for air pollution, and find that air pollution from neighboring power plants indeed has significant negative effects on local public health. The resulting treatment costs are also enormous. Our findings shed light on the necessity of intergovernmental cooperation in environmental governance.