RESEARCH
PUBLICATION
Servicification in global value chains: Comparative analysis of selected Asian countries with OECD. The World Economy, 2018;41:3045–3070. (with Thangavelu, S. M., and Oum, S.).
This paper investigates the trend of servicification in global value chains (GVCs). The degree of servicification is measured as the share of service value added in manufacturing exports. Service inputs are either from the domestic market or foreign countries, which are measured by the domestic servicification and the foreign servicification respectively. Using the international input-output tables from 1995 to 2011, we estimate the degree of servicification across 61 countries with a focus on Asian nations which have been rarely studied in previous research. We observed an evident trend of servicification in manufacturing in the Asian countries, especially in the 16 countries associated with Regional Comprehensive Economic Partnership (RCEP). Asian countries tend to have a lower level of domestic servicification but a higher level foreign servicification than OECD countries. We also identified five key factors in driving the trend of servicification. Countries with broader participation and lower positions in GVCs tend to have higher levels of foreign servicification in manufacturing. Improvements in information and communication technology (ICT) also raise the level of foreign servicification. However, countries with a larger supply of service workers, better regulation quality, and less government governance have a higher level of domestic servicification in manufacturing.
PUBLICATION
Global Value Chains, Firms, and Wage Inequality Evidence from China.China Economic Review, 2021; p.101585 (With Shandre Thangavelu and Faqin Lin)
How does participating or moving to more upstream in the global value chains (GVCs) affect the premium paid to skilled compared to unskilled labor within firms? In this paper, we develop a model of heterogeneous firms with intermediate trade and two skill inputs, in which we apply the fair wage hypothesis to predict the wage premium changes according to firms’ GVCs activities. The model predicts that firms’ backward GVC participation, as measured by the share of foreign value-added content in exports (FVAR), has an ambiguous impact on wage inequality of skills, which depends on the relative importance of “FVAR-labor substitution effect” and “FVAR-profit effect.” However, moving to upstream sectors in GVCs, as measured by the export varieties’ upstreamness (or average distance from final use), raises a firm’s wage premium. Using detailed Chinese firm-level data from 2000 to 2006, we develop a Mincer-type empirical model to study the wage premium changes associated with FVAR and upstreamness. We find robust empirical evidence that the rise of wage inequality in China mainly arises from moving to more upstream sectors rather than changing GVC participation.
PUBLICATION
Trade, technology, and the labour market: impacts on wage inequality within countries. Asian-Pacific Economic Literature, 2021 (With Shandre Thangavelu and Christopher Findlay).
This paper focuses on the widening wage inequality between skilled and unskilled workers within countries and discusses whether trade and technology have contributed to this trend. The paper develops an analytical framework for wage inequality that traces the determinants and their relative roles in wage inequality in different stages of the development of trade theory, especially those considering new evidence after 2011. We find that technology plays a key role in the rise of wage inequality in most countries, while trade plays an increasingly crucial and more complex role in recent years. Skill supply institutions, such as education systems supplying skilled labour or unions participating in wage-setting processes, suppress the rise of wage inequality in some countries. The paper further outlines the mechanisms through which trade affects wage inequality, including offshoring, firm heterogeneity, labour market frictions and global value chains. We find that trade has indirect effects on technology, which further enlarges the wage inequality among skills. The paper also discusses the policy implications of the impacts of trade and technology on wage inequality.
PUBLICATION
Trade and Human Capital in Global Value Chain in Developed and Developing Countries
This paper investigates the effects of human capital on bilateral domestic value-added trade in global value chains (GVCs) for 43 countries and 56 sectors.In contrast to previous studies,this paper estimated an approximate gravity model of value-added trade to capture the role of human capital in determining the cross-border production linkages via value-added trade.The results show that the domestic value-added trade flows depend critically on human capital development in both exporting and importing countries.The results indicate a positive effect of skilled intensity on bilateral domestic value-added trade in GVCs.We also observe a larger positive effect of skills on the GVC value-added trade for the developing economies.The paper highlights the importance of trade liberalization and forward-looking human capital development policies for the competitiveness of the developing countries in the value-added trade in GVC.
PUBLICATION
Environmental regulation and inward foreign direct investment: Evidence from the eleventh Five-Year Plan in China
This paper investigates whether environmental regulations affect inward foreign direct investment (FDI). The identification strategy uses the reduction target policy for air pollutants during eleventh Five-Year Plan period implemented by the Chinese government in 2006. Our difference-in-difference-in-differences estimation employs three-dimension of variations; prefecture (i.e., high target prefectures vs. low target prefectures), industry (more polluting industries relative to less polluting ones), and year (i.e., before and after 2005). We find that tougher environmental regulations lead to less inward FDI through increasing the probability of exit and reducing the probability of entry of foreign invested enterprises. Mechanism analysis shows that foreign invested enterprises with relatively low productivity demonstrate strong negative response. This allocation of resource improves industry productivity.
PUBLICATION
Moving up the global value chain: Effects of water pollution control regulations in China
This paper investigates the impacts of stringent environmental regulation of firm-level upstreamness in the global value chains (GVCs). Specifically, we use the nonuniform promulgation of local water pollution control regulations across cities and over time after the 11th Five-Year Plan as a quasi-natural experiment in China, in which firms are forced to adopt cleaner technologies or equipment to reduce pollution after enforcing tighter environmental standards. Using highly disaggregated firm-level data between 2008 and 2014, we find that firms in cities with stricter water pollution regulations tend to move to more upstream sectors in the GVCs. We find that this effect is more prominent for low-productivity firms, high-polluting firms, and firms with a high dependence on water in production. This paper sheds new light on the GVC upgrading of firms in response to environmental regulation changes.
PUBLICATION
Does cultural identity facilitate cooperation?Impact of business culture on boards and bank cooperation in Republican China
This paper studies the impact of cultural integration on business cooperation in the Republican Era. We collect the composition of bank boards and directors' biographical details of 28 principal banks in China, compiling a panel dataset from 1921 to 1936. The data allows us to classify directors' merchant groups, a typical cultural reflection, thereby calculating the cultural difference at the bank-pair level. Using the boards' cultural traits, we find cultural difference among bank boards is negatively related to their director-sharing decisions, an indicator of inter-bank cooperation. Also, cultural identity on boards facilitates banks to participate in loan syndicates with the yield and risk shared. Further composition tests show that cultural attitude towards clan orientation, trust and open spirit embedded in the business culture is the root of inter-banking cooperation. The finding reveals the importance of informal institutions in financial development and contributes to the debate on cultural and institutional bifurcation between China and Europe.
WORKING PAPER
Trade, Polarization and Human Capital in Global Value Chains. Working Paper, (with Thangavelu, S.M., and Findlay, C.)
In this paper, we incorporate the global input-output production linkages in the gravity model to explore the role of different skills in determining bilateral value-added trade. This paper proposes a new framework that bilateral value-added trade depends not only on the human capital of the source and destination but also on that of the third countries, which have vertical production linkages with the two countries through global value chains (GVCs). Using the cross-border sectoral input-output data covering 43 countries and 34 sectors, we examine the impacts of three types of skills on the bilateral value-added trade between the source and destination. We find a polarization effect of human capital in both source and destination, where increasing the unit wage of skilled and unskilled workers boosts their bilateral value-added trade while improving the unit wage of semi-skilled labor declining their bilateral trade in value-added. More importantly, we observe an anti-polarization impact of the human capital from the third countries on the bilateral value-added trade between source and destination. These results highlight the complementarity of tasks in terms of human capital across countries in the global value chains (GVCs).
WORKING PAPER
Impact of Servicification of Manufacturing on the Labor market: The Case of Chinese Firm-Level Data (with Thangavelu, S.M., and Findlay, C.)
The paper analyzes how servicification of manufacturing affects the employment and wage inequality of skills within firms. Using detailed Chinese manufacturing enterprise survey data from 2000 to 2006, the paper measures the extent of servicification in Chinese manufacturing firms from the perspectives of inputs and outputs respectively. This paper further explores the endogenous nexus between servicification of manufacturing and wage inequality using two new constructed instruments inspired by David and Autor(2013). We find that the rising level of servicification in the manufacturing firms of China raises the employment of skilled and semi-skilled labor but declines the employment of unskilled labor. Meanwhile, the servicification of manufacturing enlarges the wage inequality between high-skilled (skilled and semi-skilled) labor and unskilled workers. This paper adds new micro evidence on the servicification of manufacturing in China and its impacts on wage inequality of skills.
WORKING PAPER
Trade Liberalization, Export Quality and Wage Inequality: Theory and Evidence from Chinese firms (With Yihong Tang)
The paper explores a new mechanism by which trade liberalization affects the firm-level wage inequality of skills via firms’ endogenous quality choices. We modify the model of heterogeneous firms by linking trade to quality and various skill inputs. The model predicts that trade liberalization enlarges the wage inequality between higher skilled (skilled and semi-skilled) and unskilled workers via quality upgrading. Using the detailed Chinese firm data from the Chinese National Bureau of Statistics (NBS) and the Customs during the period 2000 to 2006, the paper studies the effect of reducing input and output tariffs on the wage inequality within firms in China. After controlling for the endogeneity, the empirical results of output tariff reduction support the predictions of the theory. Input tariff reduction, however, widens the wage inequality between semi-skilled and unskilled labor while declining the wage inequality of skilled and unskilled labor via quality upgrading.
WORKING PAPER
Trade Liberalization and Skill Wage Premium: The Role of Quality Upgrading (with Yihong Tang)
This paper examines how tariff reduction affects wage inequality among different types of skills via the channel of quality upgrading within industries. Using the sectoral level data of 21 countries, we observe that quality upgrading buffers the marginal effect of trade liberalization on wage inequality. A fall in the tariffs reduces the wage inequality between skilled and unskilled labor but enlarges the wage inequality between semi-skilled and unskilled labor in OECD countries. Meanwhile, tariff reduction improves the wage premium of higher skilled labor (skilled and semi-skilled) relative to unskilled labor in non-OECD countries. Quality upgrading raises the demands for skilled labor, which complements to unskilled labor but substitutes for semi-skilled labor. We observe that quality upgrading reduces the average enlarging effect of trade liberalization on wage inequality between semi-skilled and unskilled labor for all the countries; it weakens the narrowing effect of trade liberalization on wage inequality between skilled and semi-skilled labor for OECD countries.
WORKING PAPER
Global Value Chains, Servicification of Manufacturing and Productivity: Evidence from Chinese Manufacturing Firms (with Thangavelu. S.)
This paper investigates whether input trade liberalization boosts firm productivity via changing the servicification level of manufacturing firms. We use the share of service inputs in total input costs as the proxy for servicification of manufacturing from the input perspective while adopting the dummy for manufacturing firms selling services as the proxy for servicification from the output perspective. Using the Chinese firm-level data combined with the HS 8-digit custom data from 2004 to 2006, we find strong evidence that input trade liberalization boosts firm productivity. Moreover, manufacturing firms with higher servicification level at both input and output level are associated with lower productivity. After controlling for the endogeneity, we find that the impact of input trade liberalization on firm productivity is more pronounced for firms with lower servicification level. The mechanism is more significant for exporters using imported intermediates for production, but not significant for processing firms.
WORKING PAPER
Trade, Employment and Dynamic Skills in Global Value Chains: Evidence from Malaysia.
The paper examines the employment effects and the dynamic skill changes in labor market from a global value chains’ perspective. With the Asian International Input and Output table, the paper estimates the direct demand of labor from final trade and distinguishes them by different skills. The results indicate that high skilled and semiskilled labor both grow both in employment and wages in which semi-skilled labor enjoys a higher growth rate. The wage difference between skilled and unskilled labor enlarges, while wage inequality between the skilled and semi-skilled declines. All the results show that the globalization enhanced the role of skilled labor in Malaysia and shocked the position of dominant unskilled labor. The results are examined empirically. Results show that participating in global value chains will increase the share of skilled labor while decrease the share of unskilled labor in Malaysia. The results also shed a light to the increasing wage inequality and labor market upgrading in developing countries.
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