Dan Xie

Abstract: Real manufacturing output increased rapidly in China from 1998 to 2012 while sulfur-dioxide (SO2) pollution emissions grew at a much lower rate. To understand the reasons behind these patterns, I first show that firms who import or export pollute more on average but are less pollution-intensive. Using China’s entry into the World Trade Organization and the 11th Five-Year Plan as policy shocks, the difference-in-differences analyses show that trade liberalization and environmental regulations effectively reduced firm-level pollution intensity. I then decompose pollution emissions and find that the change in pollution is primarily driven by within-sector firm heterogeneities rather than industry structural change. Finally, the counterfactual analysis based on a quantitative model reveals that environmental regulations play a major role in reducing pollution and the implicit pollution tax faced by firms grew substantially over the period. In addition, tariff cuts due to trade liberalization reduce variable costs of trade and allow firms to abate pollution more.

Presented at: FIW Vienna (2024), University of Luxembourg (2023), ETSG (2023), PSE-CEPR Policy Forum (poster 2023), JIE Summer School (2023), CESifo Area Conference on Global Economy (poster 2023), Doctorissimes (2023), RES (2023), EEA-ESEM (2022), SAEe (2022), GEP/CEPR Postgraduate Conference (2022), OECD (2022), Warwick PhD Conference (2022), QMUL PhD Workshop (2022), ASPEC PhD Conference (2022), NERD PhD Conference (2022).

Abstract: We study the effect of trade liberalization on firms' monopsony power in the labor market. We measure firm-specific labor market power using markdown from production data in the manufacturing industry and document the trends in China between 1998 and 2007. Taking China's entry to WTO as a policy shock, we use a difference-in-differences (DiD) approach combined with an instrumental variable (IV) strategy to show that tariff reduction relatively decreased labor markdown among firms more exposed to trade shocks. We explain the pattern by constructing shift-share trade shocks and show that export opportunity increases the number of firms, while import competition reduces the number of firms. The net effect of trade liberalization increases the total number of firms, which is related to lower monopsony power in the local labor market.

Presented at: GRIEP Workshop (2024), Göttinger Workshop (2024), RES (2024), SAEe (2023), JEI (2023), University of Essex (2023).