Will Moving Towards a Digital Service Economy Insulate the Economy Against Environmental Shocks? (with Runpu Li) Draft
ABSTRACT: The ongoing revolution of information technology and artificial intelligence (AI) have fundamentally reshaped inter-firm relationships by increasing the complexity of supplier-customer network and diversifying the types of relationships among firms. A nuanced understanding of the heterogeneity in micro-level shock propagation within supplier–customer network is therefore essential for analyzing the sources of contemporary macroeconomic fragility. This paper extends previous literature by examining the heterogeneity in micro-level shock propagation and its macro implication on aggregate volatility. Using a comprehensive dataset on U.S. supply chains from the Bloomberg SPLC database, we study the transmission of a climate-related shock—flooding—across different supplier types. We find that customers are affected only by disruptions to intermediate input and capital suppliers. In contrast, shocks to selling, general, and administrative (SG&A) suppliers that are primarily concentrated in digital service industries do not propagate on average. This heterogeneity is largely explained by the higher competitiveness of digital service markets. Using a general equilibrium network model, we show that accounting for the fact that shocks do not propagate through SG&A linkages sharply dampens the rise in network-implied aggregate volatility observed over the past 30 years. The increase falls from about 10% to 3% since 1997, and the upward trend essentially disappears after 2012.
Environmental Tournaments As Political Incentives: Evidence from First Green Finance Pilot Zones in the World (with Dragon
Tang and Yupu Zhang) Draft
HKU-CBI Conference on the Real Effects of Green Bonds and ESG, EFA 2019, GRASFI 2020 at Columbia, 2021 FMA Virtual European Conference, 2021 Royal Economic Society Annual Meeting, 2022 CICF, 2022 CEA (UK/Europe) annual conference
ABSTRACT: In this paper, we provide empirical evidence on the incentive role of environmental tournaments. Exploiting the unique setting of the world's first nationwide green finance pilot program, we adopt a difference-in-difference design and document that being selected for green finance pilot zones (GFPZ) leads to a higher probability of government officials' promotion. Moreover, environmental tournaments exist where local government officials can boost career advancement opportunities with superior environmental performance. We find that non-pilot places make more efforts to improve environmental performance than pilot areas and expect to be included when the pilot program expands. These environmental tournament effects are more pronounced in non-pilot zone areas with more substantial career incentives (younger officials), fewer outside options (lower GDP growth and fewer social achievements), and greater enforcement abilities (more private firms). Overall, place-based green finance policies create direct political benefits and therefore impose environmental tournaments on other regions. Our paper also sheds light on a new environmental tournament channel for local government officials' career incentives.
Published Papers
Is Greenness Priced in the Market? Evidence from Green Bonds in China (with Dragon Tang and Yupu Zhang) Link
The Journal of Alternative Investments, 23(1), (2020) 57-70.
ABSTRACT: Green bonds are bonds with a defined use of proceeds toward mitigating and adapting to climate change and solving environmental problems. Although the green bond market has expanded rapidly in recent years and has attracted great investment attention, whether investors can identify greenwashing behaviors remains a primary concern. This article takes advantage of the unique feature of the Chinese green bond market that allows a proportion of the proceeds to be used for nongreen purposes. The authors find that greener bonds (more proceeds are used for green projects) are sold at a premium. This pricing differential is primarily driven by bonds with proceeds used 100% for green projects. The authors also show that green bonds verified by a third party have lower yield spreads and the effect is stronger for more reputable third parties. Overall, the results suggest that investors reward only fully green bonds and that investors can discern “greenwashing.”
Work in Progress
Opportunity Spillover: Does Supplier Innovation Induce Customer Innovation? (with Runpu Li)
ABSTRACT: we examines whether upstream innovation stimulates downstream innovation through supplier customer linkages. Conceptually, new or improved intermediate goods expand the “idea space” available to downstream firms, enhancing their innovation productivity. Using a matched supplier–customer–patent panel and a Negative Binomial model, we estimate the elasticity of downstream patenting with respect to suppliers’ innovation activity, control ling for technology spillovers and firms’ knowledge stock. We find that supplier innovation causally boosts downstream R&D productivity. These results reveal a complementary in novation channel within production networks, underscoring the role of vertical linkages in shaping aggregate innovation dynamics.