Domestic Private Firms Research Articles

Mixed oligopoly, foreign penetration and China’s environmental policy: a research based on mixed oligopoly model

ABSTRACTThis paper analyzes how the foreign penetration affects China’s environment policy in a mixed oligopoly framework, and gets several interesting conclusions. First, our result shows that government should strengthen the degree of environmental policy along with increasing proportion of domestic ownership of multinational firms. Second, we show that an increase in domestic ownership of multinational firms raises not only domestic private firms’ profit but also public firm’s profit as well as social welfare. Third, the government will raise the environmental tax to control environmental damage.

Wage Differentials among Ownership Groups and Worker Quality in Vietnamese Manufacturing

Wholly foreign multinational enterprises (WFs), joint-venture multinationals (JVs), state-owned enterprises (SOEs) pay higher wages than domestic private firms in Vietnamese manufacturing. In large samples of medium–large (20+ employees) firms, conditional differentials accounting for worker education and occupation, as well as capital intensity, size, and shares of female workers, were substantially smaller, but positive and significant. Wage levels and differentials varied substantially among industries. Conditional differentials remained positive and significant for WFs and JVs in most of the 11 industries examined, but estimates of SOE-private differentials were insignificant in most industries. Robustness checks using 2007 data yielded similar results.

Human Resource Development Investment in Chinese Private Firms: Strategic Choice and Institutional Perspectives

ABSTRACTIntegrating the strategic choice and the institutional perspectives, we provide a contextualized analysis of human resource (HR) development investment in Chinese private firms. Based on a nation-wide survey of domestic private firms, we found that strategic choice variables (i.e., private entrepreneurs’ education and governance team completeness) are positively related to HR development investment. Perceived government support for private business strengthened the positive relationships between strategic choice variables and HR development investment. Furthermore, institutional variables (i.e., owners’ political affiliation and firms’ former state ownership) explained additional variance in HR development investment above and beyond strategic choice variables. Perceived government support negatively moderated the relationship between former state ownership and HR development investment. Theoretical and policy implications were discussed at the end.

The role of the firm in worker wage dispersion: an analysis of the Ghanaian manufacturing sector

This paper uses a linked employer-employee dataset from the Ghanaian manufacturing sector to analyze earnings dispersion in Ghana from 1992 to 2003, a period post extensive economic reforms. I find that variance of earnings increased from 1992 to 1998 and decreased thereafter, resembling an inverted u-shaped relationship. I use analysis of variance and variance decomposition approaches to understand the underlying factors that led to such a pattern in earnings inequality. I find that between-firm factors explain this pattern more than within-firm factors. I also find that the mean earnings gap between workers above and below the 90th percentile of income distribution can explain the majority of the initial surge in inequality (61 %) but only explains a very small fraction of the eventual decline (9 %). I run OLS regressions similar to Mincerian equations and decompose the variance components to find that the decline in earnings inequality is consistent with decline in variance of firm-level earnings whereas variance of predicted wage from worker characteristics have increased. I also find suggestive evidence of changing patterns of worker-firm sorting which contributes to the decline in inequality. These patterns however only hold up for private domestic firms and not for foreign-owned firms. JEL Codes: J31, O15

Exporting and Productivity: Learning from Vietnam

For Africa to industrialise and develop, it must learn from successful cases of structural transformation. Just two decades ago, Vietnam had a level of per capita income and structural characteristics similar to many African economies. In the meantime, Vietnam has with great success taken a very different policy stance than typical in Africa. This is especially so in promoting export-oriented industry. If learning by exporting is a key driver of progress, then a fundamental reason for Africa's lack of transformation is likely to be the low policy priority given to export promotion in the past. To enlarge the body of empirical evidence, we use an extensive 2005–2012 firm-level panel data set from Vietnam and separate out productivity effects of exporting due to self-selection. This allows us to conclude that firms actually learn by exporting. We also examine how this learning takes place. Our findings suggest that productivity gains are associated with moving to larger scale for foreign-owned firms with little evidence of subsequent learning on export markets. We find strong evidence to suggest that private domestic firms learn and accumulate knowledge from export markets with learning attributed in some part to within-firm innovations, in particular research and development. These mechanisms are highly relevant to African countries where market size, innovation and research are seriously constrained.

International Tariffs in a Mixed Oligopoly with Research Spillovers

AbstractThis paper merges three strands of the literature – industrial organization, international trade, and economics of technical change – to examine the effect of tariffs on international mixed oligopolies which conduct research and development (R&D) that is prone to spillovers. Mixed oligopolies are prevalent in the defense sector, among other sectors. Using a two-stage sequential game with R&D in the first stage and production in the second stage, results show that higher tariffs reduce outputs of both the domestic public firm and foreign private firms, and private R&D. Effects on domestic R&D and welfare, and profits of foreign private firms depend upon spillovers. Within a large range of research spillovers, higher tariffs can in fact lower welfare. Some of these findings are different from traditional oligopolies and from models that ignore research spillovers. Policy implications are discussed.

Impacts of the WTO accession on Chinese exports

Using firm-level panel data of the Chinese electrical machinery and communication equipment manufacturers, this paper reveals that, after the entry into the World Trade Organization (WTO, henceforth), the export of Chinese firms was accelerated by a rise of productivity, but was not uniform among ownership structures. Classifying the firms into private domestic firms, state-owned enterprises, and foreign-invested enterprises, our empirical estimation concludes that the entry into the WTO had a ‘productivity effect’ on Chinese exports, and an asymmetric ‘ownership effect,’ which was less favorable to the exports for state-owned enterprises.

Firm and Product Heterogeneity in China's Automotive Exports

ABSTRACT The main purpose of this paper is to provide an in-depth analysis of the anatomy of China's automotive exports, relying on the literature on firm and product heterogeneity. For this purpose, we use highly disaggregated HS 8-digit product-category level data collected by the Chinese Customs Office for 2000 and 2008, and we distinguish between foreign firms, domestic public firms, and domestic private firms. We also decompose automotive products into autos and auto parts and components (P/C). We then calculate both the extensive margins – number of products exported – and intensive margins – average value of exports per product – of China's automotive exports. We estimate gravity equations to assess the determinants of China's exports of autos and auto P/C. Overall, our analysis yields a number of new, interesting stylized facts about China's automotive exports by confirming the need for taking into account different types of heterogeneity in analyzing international trade.

Productivity spillovers from foreign multinationals and trade protection: firm-level analysis of Vietnamese manufacturing

This paper examines how the presence of foreign multinational enterprises (MNEs) affects productivity in domestic private firms in Vietnamese manufacturing in 2005–10. The paper also examines how import protection has affected these productivity spillovers and how spillovers from wholly foreign MNEs and joint ventures differ. The most consistent result suggests wholly foreign MNEs impart negative spillovers while joint ventures tend to generate positive spillovers. Theory and random effects estimates also indicate that import protection reduces local firm productivity and weakens the effect of spillovers from all MNEs; but this result is not obtained when a fixed effects estimator is used. Results are similar in samples of labour-intensive industries, which include close to three fourths of all sample firms, but differ markedly for more capital-intensive groups.

Firm Exports and Multinational Activity Under Credit Constraints

Abstract We provide firm-level evidence that credit constraints restrict international trade and affect the pattern of multinational activity. We show that foreign affiliates and joint ventures in China have better export performance than private domestic firms in financially more vulnerable sectors. These results are stronger for destinations with higher trade costs and not driven by firm size or other sector characteristics. Our findings are consistent with multinational subsidiaries being less liquidity constrained because they can access foreign capital markets or funding from their parent company. They further suggest that FDI can alleviate the impact of domestic financial market imperfections on trade.

Corporate governance of Chinese privatized firms: Evidence from a survey of non-listed enterprises

By using a dataset containing over 1200 Chinese non-listed firms, this study examines the corporate governance of privatized firms. Based on the summary statistics for 22 governance structures, I find that privatized domestic private firms have set up stronger governance than domestic private firms that have not experienced privatization. I propose seven hypotheses to explain the leading performance of privatized firms on corporate governance. I find that while some differences are explained by the diversity of firm-level characteristics, privatized firms’ better performance on setting up a board of directors and providing the CEO with company shares is highly robust. Finally, I find strong correlations between local governments’ fiscal conditions in the privatization year and privatized firms’ governance, which suggests a significant role played by local governments in shaping corporate governance during the privatization process.

Human Capital and Growth of Industries: Evidence from China's Higher Education Expansion in the Late 1990s

Human capital is indispensable for firms in developing countries to adopt new technologies and improve productivity, especially in industries that employ technologies more complementary to skilled labor, given that new technologies available after the 1970s tend to be skill-biased. Taking advantage of an exogenous surge in college-educated labor force in China starting in 2003 due to a drastic centrally-devised higher education expansion policy starting in 1999 and using a generalized difference-in-differences framework, this paper finds that industries that employ more human-capital intensive technologies experience a larger gain in total factor productivity post-2003 relative to prior years; they also show larger increases in import of advanced capital goods, R&D expenditure, capital intensity, employees with more education and in skilled occupations, and total value-added. The extra productivity gains however are much weaker for domestic private firms than foreign-owned firms.

Corporate Tax Avoidance and Government Corruption: Evidence from Chinese Firms

In this paper I study the impact of government corruption on tax avoidance by corporations with tax liability in China. I begin by developing a model of a firm's choice of tax avoidance based on the level of corruption in the firm. I show that a higher level of government corruption and a higher tax rate are predicted to increase a firm's tax avoidance. My empirical estimates show that a one-standard-deviation increase in government corruption corresponds to a 6% increase in tax avoidance by firms, based on data from nearly 600,000 firms from 1998 to 2007. When I separate the sample by type of ownership of firms, I find that domestic private firms tend to avoid a larger portion of their tax liabilities than foreign or state-owned firms. I also find that tax avoidance increases when the effective tax rate increases. The size of the firm, age of the firm, and whether the firm exports from China also influence tax avoidance.

Financing sources and firm level productivity growth: evidence from Indian manufacturing

A large literature provides empirical evidence that financial development enhances welfare by stimulating economic efficiency and offering more profitable growth opportunities, although the issues of identifying the exact mechanisms through which finance enhances welfare and dealing with the simultaneity between financial development and growth still remain contentious. This paper takes a firm-level approach to study the link between financing sources and firm growth in India. We start by observing that (domestic) financial underdevelopment should not necessarily constrain all firms’ growth opportunities equally, given they can also access other non-bank finance sources such as retained earnings, foreign finance and government borrowings. Similarly, it is unrealistic to assume that similar financial structure will generate homogenous effects across firms. These considerations motivate our research questions of whether financing sources matter for firms’ productivity growth and whether this depends on firm characteristics such as ownership and size. We answer these questions using a rich micro panel data set and employing econometric techniques that deal with the potential reverse causality from financial structure to productivity growth. We find that relative to retained earnings, bank and nonbank finances positively affect firm level productivity growth with bank loans having the largest and government borrowings the least effect on growth. Size is found to play a mediating role in the finance-growth nexus: access to bank loans (nonbank finance) disproportionately benefits smaller (bigger) firms. Further analysis around ownership structure suggests that all else equal, it would appear that financial structure matters only for the growth of domestic private firms.

The Domestic Segment of Global Supply Chains in China Under State Capitalism

This paper proposes methods to incorporate firm heterogeneity in the standard input-output table-based approach to portray the domestic segment of global value chains in a country. The analysis uses Chinese firm census data for the manufacturing and service sectors, along with constrained optimization techniques. The conventional input-output table is split into sub-accounts, which are used to estimate direct and indirect domestic value added in exports of different types of firms. The analysis finds that in China, state-owned enterprises and small and medium domestic private enterprises have much higher shares of indirect exports and ratios of value-added exports to gross exports compared with foreign-invested and large domestic private firms. Based on input-output tables for 2007 and 2010, the paper finds increasing value-added export ratios for all firm types, particularly for state-owned enterprises. It also finds that state-owned enterprises are consistently more upstream while small and medium domestic private enterprises are consistently more downstream within industries. These findings suggest that state-owned enterprises still play an important role in shaping China's exports.

Credit constraints, firm ownership and the structure of exports in China

We investigate how the export performance in China is influenced by credit constraints. Using panel data from Chinese customs, we show that credit constraints affect the sectoral composition of exports. We confirm that credit constraints provide an advantage to foreign-owned firms and joint ventures over private domestic firms in sectors with higher levels of financial vulnerability. We show that these distortions have been lessened over the period in conjunction with the reduction of State control over the financial intermediation system.

Foreign Direct Investment and the Survival of Domestic Private Firms in Viet Nam

Foreign direct investment (FDI) may benefit local firms in the host country through various kinds of spillovers, but it may also raise competition and result in the crowding out of domestic firms. Using detailed firm-level data for the period 2001–2008, this paper examines the aggregate effect of FDI on the survival of domestic private firms in Viet Nam. We estimate the impact of both horizontal and vertical FDI and explore how the presence of state-owned enterprises (SOEs) influences the exit hazard for private firms. The results suggest that horizontal and upstream FDI raise the exit hazard significantly, while downstream FDI may reduce the hazard. The presence of SOEs has a direct negative effect on the survival odds of local private firms in the same industry, but there is also an indirect impact on the exit hazard from FDI. Local firms are more vulnerable to foreign entry in sectors with high SOE shares. Looking at the net effects of FDI during the period 2001–2008, we find that results vary between sectors and over time but that the overall impact has been surprising small. The paper also discusses policy conclusions and implications for empirical analyses of spillovers from FDI.

Firm Ownership and Social Insurance Inequality in Transitional China: Evidence from a Large Panel of Firm-Level Data

In dramatic reforms during the past 15 years, China has aimed to create a unified social insurance system across state, collective, and private ownership sectors in urban areas. Despite this nominal equality, a large panel of firm-level data from 2004 to 2007 provides empirical evidence of large disparities between firm ownership sectors in social insurance participation and generosity. We examine three types of social insurance programme: pensions and medical insurance, unemployment insurance, and the housing provident fund and housing subsidies. The results demonstrate that state-owned firms continued to be more compliant in social insurance participation and more generous in their benefit levels than collective and foreign-owned firms. Private domestic firms lagged furthest behind, being at least two thirds less likely to participate in each social insurance programme than the average state-owned firm. These disparities remain substantial and robust even after controlling for various firm characteristics and running multiple sensitivity tests. As China continues to combat evasion of social insurance payments among firms, and as the informal sector expands rapidly, these results suggest that action is required to address ownership-based segmentation in the urban labour markets.

Privatization, foreign competition, and social efficiency of free entry

This paper examines privatization policy and entry regulation in a mixed oligopoly market with foreign competitors and free entry of domestic private firms. We demonstrate that if the number of domestic private firms is small, an import subsidy may be chosen and the optimal privatization policy is full privatization. However, if the number of domestic private firms is large, an import tariff is imposed and the optimal privatization policy is partial privatization. We also show that the long-run degree of privatization is larger than the short-run one, and the long-run tariff rate is smaller than the short-run tariff if and only if the entry cost of domestic private firms is sufficiently low. Furthermore, as long as the entry cost is relatively lower, domestic entry is socially excessive whether it is free trade or the domestic government imposes the tariff policy.

The Domestic Segment of Global Supply Chains In China under State Capitalism

This paper proposes methods to incorporate firm heterogeneity in the standard IO-table based approach to portray the domestic segment of global value chains in a country. Using Chinese firm census data for both manufacturing and service sectors, along with constrained optimization techniques, we split the conventional IO table into sub-accounts, which are used to estimate direct and indirect domestic value added in exports of different types of firm. We find that in China, both state-owned enterprises (SOEs) and small and medium domestic private enterprises (SMEs) have much higher shares of indirect exports and ratios of value-added exports to gross exports (VAX), compared to foreign-invested and large domestic private firms. Based on IO tables for both 2007 and 2010, we find increasing VAX ratios for all firm types, particularly for SOEs. By extending the method proposed by Antras et al. (2012), we find that SOEs are consistently more upstream while SMEs are consistently more downstream within industries. These findings suggest that SOEs still play an important role in shaping China’s exports.