Research

Publications

Innovation, Firm Size Distribution, and Gains from Trade, with Wen-Tai Hsu and Shin-Kun Peng, Theoretical Economics, 18, Jan. 2023, 341-380, DOI: https://doi.org/10.3982/TE4152. Earlier version. Online appendix.

The Market Structures in Trade Intermediation with Heterogeneous Manufacturing Firms, with Shin-Kun Peng and Tsung-Sheng Tsai, International Review of Economics and Finance, 75, Sep. 2021, 501-523, DOI: https://doi.org/10.1016/j.iref.2021.04.013.

Learning by Supplying and Competition Threat, with Alireza Naghavi and Shin-Kun Peng, Review of World Economics, 157, Feb. 2021, 121-148, DOI: https://doi.org/10.1007/s10290-020-00386-y.

How Expert are Experts? A Model for Expertise Cultivation, with Tsung-Sheng Tsai, Academia Economic Papers, 44, Sep. 2016, 295-331. Full text available here.

Working Papers

Social Network and Industrial Policy: Japan's Camphor Monopoly in Colonial Taiwan, with Shao-Yu Jheng. Full text available here. Previous version with more emphasize to the model is here. Slide: long version and short version. 

Abstract This paper inspects how firm-official connectivity impacts the policy treatments assigned to firms in contexts of industrial policies. We digitalize the micro-level data from Japan's Camphor Monopoly System in Taiwan for 1902-1918, and compile firm-official connectivities from a social network constructed from the data archive of the official gazette during 1896-1918. Using a shock design based on shift-share approach, we then estimate the impact of connectivities on the production permit and compensation granted to the firm by the authority under the monopoly system. Our estimation suggests that firm-official connectivity played a crucial role for the policy treatments. We construct a model that mimics the ideally implemented monopoly system, such that the authority aims to maximize its profit given its connection to firms, and perform simulations to disentangle the roles of government's financial objective and favoritism towards firms in shaping the performance of the industry based on our empirical results. Our simulation suggests that favoritism towards large, mainly Japanese, firms is at play as empirically these firms receive disproportionately more favorable policy treatments while being less productive than the other firms compared with model prediction. Such a favoritism leads to a reduction in the authority's profit rate by approximately 8 percentage points, and is equivalent to a loss of efficiency in generating government profit by 19%.

Labor Market Implications of Taiwan's Accession to the WTO: A Dynamic Quantitative Analysis, with Pao-Li Chang, Wen-Tai Hsu, and Xin Yi. Full text available here. Online appendix. Presentation Slide (short). Presentation Slide (long).

Abstract This paper studies the effects of Taiwan’s accession to the WTO in 2002 on the labor market dynamics in Taiwan during 1995–2020. Our dynamic quantitative framework builds on that of Caliendo, Dvorkin and Parro (2019) but allows for differently skilled labor inputs (low, middle, high) and sector-skill dynamic choice by workers. We map the model to the labor-market transition data in Taiwan, the country-sector-specific skill shares in production, and the bilateral trade flows and import tariffs, of 61 economies and 22 sectors for the period 1995–2007. We study the counterfactual dynamics if the bilateral tariffs related to Taiwan’s imports and exports are rolled back to their 1995 levels, and calculate the cumulative effects on the employment shares and welfare of workers by sector and skill level. We find that the tariff reductions during this period help explain the phenomenal expansion of certain star sectors in Taiwan and the growing share of high-skilled workers in Taiwan’s labor composition. Bilateral tariff concessions between China and Taiwan account for the bulk of the effects of Taiwan’s WTO accession, illustrating the importance of China to Taiwan in the latter’s trade structure. The skill-upgrade mechanism is critical in explaining the large employment effects of its WTO accession.

Cap-and-Trade System, Firm Selection, and Emission Intensity, full text available here. Slide for an earlier version available here.

Abstract We investigate the implications of a cap-and-trade system on industrial productivity and emission intensity in an environment where firms exhibit heterogeneity in their productivities. Our analysis reveals that a cap-and-trade system with free firm-level allowances leads to a more lenient firm selection compared to an unregulated economy. This leniency arises because free allowances act as subsidies, and the aggregate emission cap reallocates workers from the materials sector to the manufacturing sector beyond the scale under the competitive equilibrium. The effects respectively reduce barriers for firms to remain operative as well as production efficiency in the manufacturing sector, thereby prompting unproductive firms to stay operative. This lenient firm selection can outweigh improvements in firm-level emission per unit of output, resulting in higher emission intensity at the economic level compared to situations where environmental regulations are absent. We inspect the impact of the phasing out of free allowances using the EU Emission Trading System as an illustrative example. By calibrating the model in accordance to the EU ETS, our simulations demonstrate that the phasing out of free allowances partially mitigates the effects of lenient firm selection, leading to a substantial improvement in emission intensity.

Work in Progress

Labor Market Participation, Income Distribution, and Welfare Gains from Trade, with Pao-Li Chang and Wen-Tai Hsu

Abstract This paper studies a household model in which households consume both goods available from the markets and a home good and allocate their time between working and home production. Households differ in their skills and hence income. The household model predicts a monotonic relationship between household labor participation rate and skill/income, and the direction depends on whether the market-good composite and the home good are substitutes or complements. We test the model predictions with Taiwanese household income survey data. The empirical evidence is in support of the theory for the case where the market and home goods are substitutes instead of complements. In contrast to the trade literature, in which most models feature inelastic labor supply, we study the role of the labor-participation mechanism by embedding the household model into the Ricardian trade model of Eaton and Kortum (2002). Our calibrated model suggests that the welfare gains from trade is only 46% of those in the Eaton-Kortum model, showing a strong dampening effect due to this mechanism.

Growing with Product and Process Innovations, with Wen-Tai Hsu, Shin-Kun Peng, and Ping Wang

Increasing Markup, Declining Labor Share, and Oligopolistic General Equilibrium, with Wen-Tai Hsu