Intensive Margin Research Articles

Growing beyond trade: Export shocks and the spatial expansions of bank branching

AbstractThis paper empirically examines the impact of tariff reductions for exporters on banks' location choices with geo‐referenced information on subsidiaries and branches of China's state‐owned and joint‐stock banks. We construct prefecture‐level tariff barrier changes faced by exporters from 2001 to 2007 and identify the impact by exploiting within‐bank cross‐prefecture changes in bank branching patterns. The empirical results suggest a positive and significant pass‐through from export expansion to banks' geographic expansion. Specifically, a 10% export tariff reduction would induce a 1.88% increase in the local number of bank branches. This result holds under a battery of robustness tests. Mechanism tests suggest that increased credit demand in the corporate sector, both at the intensive and extensive margins, is the main channels that explain the baseline patterns. The findings in this paper offer valuable insights into the relationship between internationalisation and financial development.

Revisiting the Schooling Inputs Debate: Experimental Evidence From an Early Grade Literacy Intervention in Lao PDR

ABSTRACTDespite the importance of interventions focused on schooling inputs, such as teacher training and provision of reading materials, there is mixed evidence on their impacts on the intensive margin of schooling. In this context, we provide evidence from a randomized controlled trial of a schooling intervention in Lao PDR, which focused on a combination of literacy activities, including teacher training, provision of reading materials, and community engagement in children's education. We show that the 2‐year effect of the literacy activities led to significant improvements in basic and foundational literacy skills for Grade 2 students in Lao PDR. We provide suggestive evidence that improvements in school environment (including more frequent engaging activities in the classroom by the teacher) and improvements in home literacy environment (such as encouraging children to read) play a key role in students' higher literacy outcomes.

Combining the pieces: identifying key determinants of export diversification in Africa amidst model uncertainty

AbstractExport diversification can be a driver of economic growth. Policies to diversify exports attempt to defy an existing comparative advantage in low-value-added goods to promote transformation. Many structural, general policy, and trade-related variables have been identified as important drivers of diversification. This article reviews the literature on the determinants of export diversification and applies Bayesian Model Averaging (BMA) to empirically tackle model uncertainty stemming from many possible determinants. It assesses the relevance and impact of up to 46 drivers of export diversification for up to 47 African countries and 123 trading partners from 1995 to 2018. It finds that African countries’ structural features are especially influential in determining export diversification, a potential explanation for Africa’s more concentrated export baskets compared to other world regions. Furthermore, trade policies, like tariffs and regional integration, are critical in promoting export diversification. These findings underscore the AfCFTA’s potential to foster export diversification across African economies. A diverse set of non-trade-related policy variables also significantly affect export diversification. Factors such as institutions, education, service sector, resource rents, financial development, FDI and exchange rate stability are relevant determinants in different settings. Moreover, the analysis shows that whom you trade with is also important for diversification, and that context-specific differences, such as specific regional integration contexts or type of commodity-dependence, matter. The results suggest that the goals to diversify exports at the extensive margin for structural change and the intensive margin to tackle volatility, seem often not achievable via the same policies.

Financial constraints for R&D and innovation: new evidence from a survey experiment

ABSTRACT We utilize a survey experiment to evaluate the existence and degree of financial constraints for R&D. The experiment not only allows for the deduction of the presence of financial constraints but also for evaluating their economic significance. Using data on German companies, we find that financial constraints exist, but their relevance might have been overestimated in the literature. Most R&D projects that have not been implemented because of financial constraints seem to have low expected marginal rates of return. While this finding contrasts with other studies, we also find results that align with the literature: young firms are most constrained, and the constraints occur at the intensive margin, i.e. our results do not suggest that firms are deterred from innovation. Instead, highly innovative companies are restricted by the capital market. Small firms, in particular, had innovation projects in their portfolios that were not implemented.

Optimal unilateral climate policy with carbon leakage at the extensive and the intensive margins

AbstractWe derive the optimal unilateral climate policy for an open economy with a domestic emissions target and aversion to carbon leakage, distinguishing between leakage at the extensive margin, where domestic firms relocate to foreign countries, and leakage at the intensive margin, where domestic firms lose world market shares. Implementing the optimal allocation requires several instruments including a lump‐sum location subsidy to counter leakage at the extensive margin. Simulations indicate substantial leakage at the extensive margin and a social welfare gain of around 0.3 percent of national income from our optimal leakage‐adjusted tax‐subsidy scheme compared to uniform carbon taxation.

Why high-speed rail causes heterogeneous spatial patterns in firm innovation: Perspectives from intensive and extensive margins.

This study examines the impact of high-speed rail (HSR) on corporate innovation in China, analyzing county-level patent applications. Utilizing difference-in-differences regression, we break down the overall impact of HSR connectivity on innovation into two categories: extensive margins, where a greater number of firms become innovative, and intensive margins, where individual firms increase their level of innovation. HSR access has increased patent applications, particularly in manufacturing and non-high-tech services, affecting both margins. However, in high-tech services, the impact is significant only on the extensive margin. Effects vary between urban areas and peripheral counties, with knowledge spillovers and brain drain as key predictors.

The Heterogeneous Effects of Monetary Policy on Labor Income: Disentangling the Extensive and Intensive Margins

The Heterogeneous Effects of Monetary Policy on Labor Income: Disentangling the Extensive and Intensive Margins

Optimal pensions with endogenous labour supply

We show that a two-part pension system provides optimal capital accumulation without distorting labour supply, thereby achieving the first-best. An economy with too little retirement saving should combine a negative income tax with a consumption tax to replicate the first-best allocation without using any lump-sum taxes. Our results are shown in a classic Diamond overlapping generations model that is augmented with endogenous labour supply on the intensive margin.

Gender differences in the added (home) worker effect

This study combines the literature on home production and on the added worker effect as households’ self-insurance mechanisms against unemployment. Exploiting Dutch panel data with detailed information on time use categories and subjective job loss expectations, we estimate the causal effect of an unforeseen job loss on spouses’ time use decisions regarding paid work and home production. In the analysis we explicitly differentiate between males and females who experience sudden unemployment. We find no effect on the intensive or extensive margins of spousal labor supply or on spousal time in home production.

Working less for longer: unintended effects of longevity adjustment of retirement age

AbstractUsing a standard macro model with overlapping generations in the manner of Blanchard–Yaari, we show that by broadening the labour supply on the extensive margin through longevity adjustment of the statutory retirement age, labour supply is likely to decrease on the intensive margin. However, this backlash effect depends on the specific design of the pension system. It is significantly higher under a pay-as-you-go scheme with fixed benefits compared to a pay-as-you-go scheme with fixed contributions and a fully funded scheme based on voluntary savings. The findings have implications for responses to the fiscal and macroeconomic challenges raised by an ageing population.

The earned income tax credit (EITC) and time spent helping and caring for adults

AbstractThis is the first study to examine the effect of the Earned Income Tax Credit (EITC) on unpaid caregiving for adults, which could operate through the credit’s effects on labor supply and household income. Using a sample of unmarried mothers and data from the American Time Use Survey (ATUS), I employ a simulated benefit approach to generate causal estimates of the effect of EITC generosity on time use. I find that increases in average EITC benefits have differential effects on assisting adults by both the age of the EITC recipient and the relationship between the EITC recipient and the care recipient. No effect is estimated for the youngest group of unmarried mothers (ages 25–34), who increase employment without reducing time spent assisting adults. In contrast, the oldest group of unmarried mothers (ages 45–54) responds by increasing their propensity to assist their parents while maintaining their labor supply. Unmarried mothers aged 35–44 both increase their labor supply and spend more time assisting adult family members on the intensive margin, even as they are less likely to assist parents on the extensive margin, especially with chore help. Results for other types of time use (home production, leisure, childcare, education, sleep), as well as probability of multigenerational co-residence, help explain these shifts. For example, for the oldest group of unmarried mothers, increased co-residence with parents is estimated to occur and may facilitate this labor-caregiving balance. These results add to a growing body of evidence that the EITC affects recipients’ time allocation beyond paid work and that the effects of the EITC span across generations and households.

Digital trade liberalization and quality upgrading: evidence from Chinese intermediate imports

ABSTRACT This article investigates how the import quality of intermediate products responds to digital trade liberalization using Chinese Customs data and the composite index of digital trade liberalization obtained from OECD database for 2014–2019. The results reveal that digital trade liberalization has significantly improved the quality of Chinese manufacturing intermediate imports. Further mechanism tests show that digital trade liberalization will boost the improvements through trade cost reduction effects. For the influence path, digital trade liberalization will promote the quality upgrading through both intensive and extensive margins. The heterogeneity analyses find that imports from countries with high economic developments experienced larger quality promotion than those from lower economic area. Meanwhile, the quality upgrading effects of digital trade liberalization are mainly reflected in Chinese non-comparative industries, such as downstream, digital-intensive, R&D-intensive and technology-intensive industries. Moreover, compared to homogeneous products and those by processing trade mode, the quality of intermediate imports for differentiated products by general trade are more responsive to the liberalization of digital trade barriers.

Joint effects of ill-health, health shocks and social protection on the intensive margin of labour supply: evidence from Malawi

BackgroundThere is sparse evidence on the joint effects of ill-health, health shocks and social protection on the intensive margin of labour supply, particularly in developing countries. We interact ill-health and health shocks with access to social protection and estimate their joint effects on weekly hours of work.MethodsWe employ a zero-inflated Poisson model to assess joint effects of ill-health, health shocks and social protection on weekly hours of work exploiting pooled repeated cross-sectional data from Malawi.ResultsWe find that overall, individuals who suffered from ill-health or a health shock, including an illness/injury, a hospital admission or a chronic illness and benefited from social protection, reduced their weekly hours of work.ConclusionsThe study provides novel empirical evidence on the potential joint effects of ill-health, health shocks and social protection on the intensive margin of labour supply, shedding light on the role social protection can play in developing countries.

Does export promotion enhance firm-level intensive margin of exports? Evidence from a meta-regression analysis

PurposeThe impact of export promotion programs (EPPs) on the intensive margin of exports remains somewhat uncertain. This study tackles a crucial question: does export promotion enhance firm-level intensive margin of exports?Design/methodology/approachWe draw upon comprehensive empirical research conducted up to 2023. We collected 951 estimates, constructed 22 variables, captured diverse contexts and employed a meta-analytical approach to scrutinize the considerable variation in findings.FindingsThe overall meta-effect, after filtering out publication bias, is positive and statistically significant. Firms receiving EPP support exhibit an export intensity that is 1–9% higher than firms not participating in such programs. Assessing the mechanisms through which EPPs bolster this, we observe that support in the form of various services plays a more substantial role compared to assistance in the form of financial resources.Research limitations/implicationsEvaluating EPPs and their activities in terms of social welfare falls beyond the scope of this paper, which specifically focuses on the benefits of EPPs to export intensity. Subsequent research should undertake a comprehensive evaluation, considering both economic impacts and costs for accurate assessments of welfare. We also suggest that future meta-analyses explore other dimensions of firm-level performance linked to EPPs.Practical implicationsPublication bias distorts the impacts of EPPs, leading to an overstatement of their actual effects. Adjusting for publication bias, the practical significance of EPPs for a country’s trade intensity appears to be limited. Additionally, the provision of diverse activities and services primarily contributes to the amplification of export margins as compared to subsidies and grants. While larger firms initially benefit more from EPPs, these effects are found to be transitory.Originality/valueThis is the first meta-analysis scrutinizing the impact of EPPs, specifically concentrating on the firm-level intensive margin of exports.

Proxy Advisory Firms and Corporate Shareholder Engagement

Abstract We study how Institutional Shareholder Services (ISS) affect firms’ engagement with shareholders. Our analyses exploit a quasi-natural experiment using say-on-pay voting outcomes near a threshold that triggers ISS to review engagement activities. Firms receiving ISS treatment exhibit swift and substantive increases in extensive and intensive margins of engagement, especially when their boards have higher agency conflicts and directors are more likely to lose voting support from ISS. Increases in engagement persist over time, and shareholders appear to value the increased engagement. Collectively, we shed light on an unexplored channel through which ISS positively influences firms’ governance and information environments.

CAN MASS MEDIA CAMPAIGNS INCREASE DEMAND FOR RENEWABLE ENERGY? EXPERIMENTAL EVIDENCE FROM SENEGAL

Abstract This paper examines public investment in mass media campaigns aimed at stimulating market-led growth within the renewable energy sector in a developing country setting. We run a randomized field experiment to estimate the impact of a large-scale information campaign on the adoption of renewable energy technology, which includes clips broadcasted on national radio and print materials distributed in rural villages in Senegal. While the radio campaign primarily influences the number of renewable energy products owned by existing users (intensive margin), the combination of radio and print significantly increases the number of new adopters (extensive margin). However, when scaled nationally, we calculate a meaningful advantage of the radio clips over the print materials in terms of the cost per additional sales of solar lamps. The study further introduces an innovative methodological approach for examining nationally broadcasted information campaigns, offering valuable insights for future research and policy evaluations.

Lights dim, exports down: Examining the trade effects of power shortages on Chinese manufacturing firms

While existing research extensively investigates the repercussions of demand shocks on export performance, limited attention has been given to understanding the trade implications of supply-side input shocks. Utilizing a city-level power shortage index and firm-level data from 2006 to 2014 for the Chinese manufacturing sector, we provide novel evidence of a significant negative impact of power shortages on export performance. This finding remains robust across alternative measurements and in addressing endogeneity concerns. Furthermore, we find that power shortages curtail firms' inventory and innovation activities, which are linked to export performance. Heterogeneity tests reveal insignificant impacts on state-owned firms, those in inland areas and high-energy-consuming industries as well. Additionally, our findings indicate that power shortages exclusively affect the intensive margins of exports rather than the extensive margins. This research offers valuable insights for policymakers and managers in devising strategies to mitigate the adverse effects of power shortages.

Knowledge-intensive business services and new venture growth: A sub-national analysis based on complexity theory

The significance of economic complexity in fostering extensive entrepreneurship is increasingly recognized. However, previous research has largely overlooked how economic complexity impacts intensive entrepreneurship, particularly the role of knowledge-intensive business services (KIBS) in this process. This study addresses this gap by analyzing over 12,000 observations from all 47 regions of Japan between 2006 and 2017. Our findings reveal that KIBS complexity significantly promotes new venture growth through three key mechanisms: improved financial access, enhanced professional services, and increased innovation opportunities. Furthermore, we find that the positive effects of KIBS complexity are especially strong in industries with high complexity and in urbanized regions. This study makes several contributions: it refines the analysis of economic complexity to the sub-national level, introduces a micro-level perspective to the literature on economic complexity, and connects KIBS with the intensive margin of entrepreneurship through the complexity lens.

Human capital and black-white earnings gaps, 1966–2019

This paper estimates the contribution of human capital, measured using educational attainment and standardized test scores, to Black-white gaps in labor market outcomes in three separate samples of both men and women spanning the period from 1966 through 2019. There are three main findings. First, the magnitude of the reduction in the earnings gap that occurs after controlling for education and test scores has become much larger over time, suggesting a growing contribution of these traits to Black-white earnings disparities. Second, growth in the explanatory power of education and test scores has been primarily due to increases in the association between these traits and the likelihood of non-work, with no clear increases for hourly wages or other intensive earnings margins. Third, in most cases these trends are due to changes in the returns to the human capital traits, rather than changing racial gaps in the human capital traits themselves. These main findings apply qualitatively to both men and women. However, the magnitude of attenuation is much larger for women than for men, and conditional racial gaps in labor market outcome among women are often close to zero. Evidence suggests that this parity between Black and white women conditional on education and test scores is not primarily due to sample selection. Overall, the paper’s findings highlight how structural developments in the US labor market, such as increasing returns to skill and changing labor force participation rates by skill level and gender, have had disparate impacts across racial groups despite being race-neutral on their face.

Hours of work and the long‐run effects of in‐work transfers

AbstractPolicymakers have increasingly turned to ‘in‐work transfers’ to boost incomes among poorer workers and strengthen work incentives. One attraction of these is that labour supply elasticities are typically greatest at the extensive margin. Because in‐work transfers are normally subject to earnings‐related phase‐outs, they tend to most strongly incentivize part‐time work, weakening incentives to increase hours beyond that. But if part‐time work generates relatively little in the way of human capital and career progression, then policy design should factor in the longer‐term consequences of labour supply choices along the intensive margin. To that end, we use a dynamic model of female labour supply with endogenous human capital accumulation, and study actual and hypothetical welfare reforms in the UK. We show that for a given expansion in the government budget, those reforms that incentivize full‐time work can do considerably more to increase incomes, including among poorer households, and to raise welfare. Our results suggest that in‐work transfers could be refined by paying greater attention to the intensive margin effects through the design of their phase‐outs.