University of Rochester
232 Harkness Hall
Institutional Affiliation: University of Rochester
NBER Working Papers and Publications
|August 2019||Misallocation Under Trade Liberalization|
with Yan Bai, Keyu Jin: w26188
This paper formalizes a classic idea that in second-best environments trade can induce welfare losses. In a framework that incorporates distortion wedges into a Melitz model, we analyze a channel in which trade can reduce allocative efficiency arising from the reallocation of resources. A key aggregate statistics that captures this negative selection is the gap between input and output shares. We derive sufficient conditions for welfare loss due to trade under important distributions. Using Chinese manufacturing data for the period 1998-2007, we show that welfare gains and productivity have qualitatively and quantitatively large departures from those predicted by standard models of trade.
|March 2018||Do Financial Frictions Explain Chinese Firms’ Saving and Misallocation?|
with Yan Bai, Xu Tian: w24436
We use firm-level data to identify financial frictions in China and explore the extent to which they can explain firms' saving and capital misallocation. We first document the features of the data in terms of firm dynamics and debt financing. State-owned firms have higher leverage and pay much lower interest rates than non-SOEs. Among privately owned firms, smaller firms have lower leverage, face higher interest rates, and operate with a higher marginal product of capital. We then develop a heterogeneous-firm model with two types of financial frictions, default risk, and a fixed cost of issuing loans. Our model generates endogenous borrowing constraints as banks consider the firm's productivity, asset, and debt when providing a loan. Using evidence on the firm size distribution and fin...