Job Market Paper
Automation, Financial Frictions, and Industrial Robot Subsidy in China
Presentations: LSE Macro Seminar, Tsinghua University - China Financial Research Network Workshop
Presentations: LSE Macro Seminar, Tsinghua University - China Financial Research Network Workshop
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Abstract: This study examines the effects of the robotic subsidy policy in China's manufacturing sector. The demand-side subsidy policy aims at encouraging manufacturing firms to invest in robotics by lowering the cost of purchase. Our difference-in-differences analysis reveals distributional impacts of municipality-level robot subsidies on manufacturing firms of different scales. Although the subsidy brings a 13.6% increase in the application of robotics patents, the facilitated access to robotics has not transformed into new firm entries. Strikingly, new firm entry decreases by 14.0% after the policy implementation. On the other hand, robot subsidies have increased the revenue, total asset, and employment of larger manufacturing firms by 7.8%, 6.4%, and 5.8%, respectively. To interpret the mechanism, we develop a simplified framework incorporating financial frictions into a task-based model. The model reveals that idiosyncratic borrowing costs lead to an inefficient equilibrium by generally depressing automation adoption and creating automation dispersion across firms. Such ex-ante distortion results in a uniform subsidy disproportionately benefiting firms with better capital access, thus creating a trade-off in terms of efficiency: while the subsidy can enhance overall automation, it simultaneously exacerbates automation dispersion. To quantify the efficiency implications, we embed this simplified model into a dynamic heterogeneous firm framework, calibrated to the 2010 productivity distribution, financial frictions, and robot density in the industrial sector in China. Our dynamic model reveals that a 20% robot subsidy narrows the gap between mean and optimal automation level by 22% percentage points, while raises automation dispersion by 49%. This results in a 1.23% increase in aggregate output at the cost of a 2.40% decline in TFP. This dynamic model proposes a novel mechanism that automation exacerbates capital misallocation by enlarging asset accumulation dispersion between workers and entrepreneurs. Controlling for this dynamic feedback could enhance the subsidy-induced output gain by an additional 26%.
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Research Projects
2. Credit Reallocation and Skill-Biased Technology Adoption in Recessions
3. Automation, Financial Frictions and the Business Cycle
4. Trapped in Flood? Migration Decisions in Response to Floods in China (with Yuxiao Hu)
5. Natural Disasters and Spatial Patterns of Innovation (with Haoyu Gao, Yuxiao Hu, and Peixuan Zhao)
Pre-Doctoral Publication
How Housing Price Affects Labour Migration? (with Li Zhang, and Jing He)
Chinese title: 房价如何影响劳动力流动?; published at Economic Research Journal 经济研究 (Top 3 Chinese Journal In Economics)
Abstract: The continuous growth of housing prices in China has significantly outpaced wage increases. Does this trend suppress the influx of migrant labor? We analyze this question in this study. Theoretically, it argues the dual effects of housing prices: the pulling effect and the resistance effect. On one hand, housing prices signal the characteristics of alternative cities, reducing the uncertainty of expected future income and thus attracting labor. On the other hand, high housing costs compress disposable income, creating resistance. These two effects combine to form an inverted U-shaped impact on labor mobility. Empirically, this paper uses data from the 2012 and 2014 China Labor Dynamics Survey (CLDS) and matches it with housing price data from 250 prefecture-level cities between 2000 and 2012 to create a micro-database. The findings confirm that housing prices indeed have an inverted U-shaped effect on labor mobility. The results remain robust even after controlling for endogenous issues, measurement errors in housing prices, characteristics of the place of origin, and migration motivations. Additionally, this paper examines the heterogeneous impacts of various factors such as education level, skill level, family class, and household registration (hukou). It finds that high-skilled labor has a smaller inverted U-shaped inflection point and is more sensitive to housing prices due to their stronger demand for homeownership. The inverted U-shaped impact is mainly observed in large cities, with coastal cities having a larger inflection point. Currently, most cities, except for some first-tier cities, exhibit a pulling effect on labor due to housing prices.
Chinese title: 房价如何影响劳动力流动?; published at Economic Research Journal 经济研究 (Top 3 Chinese Journal In Economics)
Abstract: The continuous growth of housing prices in China has significantly outpaced wage increases. Does this trend suppress the influx of migrant labor? We analyze this question in this study. Theoretically, it argues the dual effects of housing prices: the pulling effect and the resistance effect. On one hand, housing prices signal the characteristics of alternative cities, reducing the uncertainty of expected future income and thus attracting labor. On the other hand, high housing costs compress disposable income, creating resistance. These two effects combine to form an inverted U-shaped impact on labor mobility. Empirically, this paper uses data from the 2012 and 2014 China Labor Dynamics Survey (CLDS) and matches it with housing price data from 250 prefecture-level cities between 2000 and 2012 to create a micro-database. The findings confirm that housing prices indeed have an inverted U-shaped effect on labor mobility. The results remain robust even after controlling for endogenous issues, measurement errors in housing prices, characteristics of the place of origin, and migration motivations. Additionally, this paper examines the heterogeneous impacts of various factors such as education level, skill level, family class, and household registration (hukou). It finds that high-skilled labor has a smaller inverted U-shaped inflection point and is more sensitive to housing prices due to their stronger demand for homeownership. The inverted U-shaped impact is mainly observed in large cities, with coastal cities having a larger inflection point. Currently, most cities, except for some first-tier cities, exhibit a pulling effect on labor due to housing prices.