Spillover Channels Research Articles

Proximity to War: The Stock Market Response to the Russian Invasion of Ukraine

AbstractWe identify a “proximity penalty” in the stock market response to the Russian invasion of Ukraine: the closer countries are to Ukraine, the lower their equity returns in a four‐week window around the start of the war. This result holds even at the firm level within Ukraine's neighbors. Trade linkages explain two‐thirds of the proximity penalty. We attribute the remainder—1.1 percentage points in equity returns per 1,000 km of extra distance—to military disaster risk. Evidence from other financial data, geopolitical risk indicators, and aid flow statistics supports the relevance of military tail risk as a spillover channel.

Urban air pollution and systemic risk of the real estate market in China

Air pollution is a major environmental risk to the economy nowadays. Given that urban air pollution is one of the determinants of urban housing price, and that both urban air pollution and housing price have significant spatial spillover effects, this paper explores the impact of inter-city air pollution spillover on systemic risk of the real estate market, using housing price data of 79 cities in 8 major urban agglomerations in China. This paper innovatively introduces the principal component analysis into the VAR model and appropriately conducts historical decomposition to construct a new systemic risk measurement index of the real estate market, which can identify both direction and magnitude of the impact. The results show that, on the time dimension, air pollution is found to contribute most time when systemic risk of the real estate market reaches a high level. On the spatial dimension, this paper identifies the urban agglomerations and node cities whose systemic risks of the corresponding real estate markets are more susceptible to air pollution spillover. On the spillover channels, this paper finds that the past cultivation of environmental awareness and the implementation of environmental protection policies in China have alleviated the negative impact of air pollution spillover on the systemic risk of the real estate market.

International portfolio rebalancing and fiscal policy spillovers

We theoretically and empirically evaluate the spillover effects of debt-financed fiscal policy interventions of the United States on other economies. We first consider a two-country dynamic stochastic general equilibrium model with international portfolio rebalancing effects arising from an imperfect substitutability between short- and long-term domestic and foreign bonds. We show that the model predicts fiscal multipliers for the US similar to those found in the literature. For international spillovers, the model shows that US fiscal expansions financed by long-term debt issuance would, on net, hinder economic activity in the rest of the world (ROW). This is despite the standard trade channel's net positive effect on the ROW economy given the depreciation in the ROW currency. The fall in ROW output occurs mainly due to the increase in the ROW term premiums and long-term rates through the portfolio rebalancing channel, as the relative demand for ROW long-term bonds decreases following the increase in the supply of US long-term bonds accompanying the fiscal expansion. Testing the predictions of our theoretical model by using panel regressions and vector autoregressions, we find empirical support for the trade and portfolio balance channels of fiscal spillovers and for the negative relationship between ROW output and US fiscal policy shocks.

Does Eco-Innovation of Emerging Market Firms Benefit from Knowledge Spillovers of MNC in a Multi-dimensional Task Environment?

Taking a socially proactive stance that aligns with their economic imperatives has led multinational corporations (MNCs) to focus on social innovation that tackles environmental challenges (or eco-innovation hereafter). Their knowledge of eco-innovation is important to emerging markets that are facing severe environmental challenges and to emerging market firms (EMFs) whose eco-innovation activities face resource and knowledge constraints. MNCs, through their foreign direct investment (FDI) activities in host emerging markets, can divulge economic, knowledge and environmental values of eco-innovation, helping EMFs to improve their eco-innovation through knowledge spillover channels. Taking the value-based approach, we draw on the eco-innovation research and the MNC/FDI spillovers literature to develop hypotheses on the relationship between regional knowledge spillovers of MNCs and the eco-innovation of EMFs in a multi-dimensional task environment characterized by munificence, complexity and dynamism. Our empirical examination is based on a sample of Chinese manufacturing firms from 2003 to 2013. We find support for hypotheses that regional knowledge spillovers of MNCs enhance the positive effects of munificence and mitigate the negative effects of complexity and dynamism on the eco-innovation of EMFs.

Mediating factors and spillover effects of foreign direct investment : Evidence from Indian manufacturing firms

The present study examines the extent and direction of horizontal, backward and forward spillover effects of FDIs on firms' productivity. It also shows how the mediating factors (firm's age, export and import intensity, R&D and advertisement intensity) contribute to the firms' productivity. Further, the study also uncovers the importance of the ownership patterns of the firms that affect the spillovers. It uses a balanced firm-level panel data set from the Indian manufacturing industries over the available period 2003 to 2016 to examine the inter- and intra-industry spillovers of the FDIs. The estimation methods used in this study are the fixed effects approach and the generalised method of moments. The study also applies the Levinsohn-Petrin method to compute firm-level productivity. It finds a significant positive spillover backward effect and confirms the supportive role of the mediating factors in augmenting the spillover channels. However, the results do not support the existence of horizontal and forward FDI spillover effects for the overall manufacturing industries. They suggest that a comprehensive policy package approach be used, thereby underlining the importance of all channels of the FDI spillover effects and their relations to the downstream sector, particularly by keeping the performance of the firms and their external links in perspective.

Spillover effects of multidimensional information in Fed statements on China's bond market

This paper shows significant information spillover effects of Fed statements on China's bond market. Regarding Fed monetary policy statements as external shocks, we extract both monetary policy information and narrative sentiment information from the statements, with the sentiment data measured using the text analysis method. Furthermore, it investigates spillover effects of the multidimensional Fed information on investors' trading behaviors in China's bond market, using the event study method. Our study emphasizes three key findings. First, both monetary policy and textual sentiment within Fed statements influence trading decisions of China's bond investors, generating international spillover effects. Importantly, the role of textual sentiments as an additional spillover channel of Fed statements has been overlooked in existing literature. Second, the US monetary policy information influences investors' expectations of China's short-term interest rates and their perceptions of risks associated with holding China's long-term bonds, while the Fed's negative and uncertain sentiments primarily impact investors' short-term rate expectations. Moreover, the spillover effects of Fed sentiments on China's yield curve cannot be blocked by China's managed floating exchange rate regime. Third, the heterogeneity test reveals that spillover effects of multidimensional information in Fed conventional monetary policy statements on China's bond market are stronger than those of Fed unconventional monetary policy statements. These findings suggest that Fed narrative sentiments should be incorporated into the research framework of international spillover effect of monetary policy, especially amidst the current period characterized by growing anticipation of federal funds rate cuts and enduring monetary policy uncertainty, providing valuable insights for trading decisions of China's bond market investors.

Global Spillovers of China's Monetary Policy

AbstractSpillovers from China's monetary policy have become increasingly obvious with China's growing importance in the global economy and its close economic and trade ties with the world. This study establishes a proxy structure vector autoregression model to investigate the magnitude and transmission channel of spillovers from China to global and regional economies, taking advantage of high‐frequency changes in asset prices in the financial markets to identify monetary policy shocks. The analysis reveals that China's monetary policy can affect the global economy by influencing international trade and commodity prices but there is no evidence of China's monetary policy affecting global financial variables. Tightness in China's monetary policy can cause a decline in world output whereas expansion in monetary policy can support global trade and output. This study also finds that the response of emerging Asian economies to China's monetary policy shock was nearly twice that of developed economies, while the transmission path did not change. The results of this study are consistent with the stylized fact that China's monetary policy plays an important role in the global trade and commodity cycle, although it does not drive the global financial cycle.

Loss of Peers and Individual Worker Performance: Evidence From H-1B Visa Denials

We study how restrictive immigration policies that result in the unexpected loss of coworkers affect the performance of skilled migrants employed in organizations. Specifically, we examine the impact of the loss of team members on their coworkers’ performance in response to the unexpectedly increased denials of extensions of H-1B work visas in the United States beginning in 2017. Losing a team member generally has a positive, albeit economically insignificant, effect on the performance of workers left behind. However, we find that individuals who lost peers of the same ethnic background experience a substantial decrease in their performance. To confirm that our results are not plagued by the presence of unobservable team or individual features that might impact visa denial decisions, we build an instrumental variable that exploits the fixed duration of the H-1B visa. Heterogeneity analyses suggest that our result is driven by workers in small teams, teams working on atypical tasks, and ethnically homogeneous teams. These analyses hint at the fact that ethnic ties may boost individual performance through preferential channels of knowledge and information spillovers. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2023.17319 .

Can Foreign Institutional Investors Stimulate Environmental Innovation? Evidence From China’s Stock Market Liberalization

In this paper, the Mainland-Hong Kong Stock (MHKS) Connect Program is used as a quasi-natural experience to study the relationship between foreign institutional investors and environmental innovation. Using the sample of the Chinese mainland A-Share market industrial firms from 2012 to 2019 and Difference-In-Difference model, we find a promoting effect of the foreign institutional investors on the mainland firms’ environmental innovation. The mediating effect tests prove that foreign institutional investors inspire environmental innovation through monitoring channel (supervising the environmental innovation), insurance channel (tolerating innovation failures) and knowledge spillover channel. It is noteworthy that only firms in the regions of high innovation capacity benefit from the knowledge spillover channel. Our study implies that environmental innovation can benefit from the opening-up of the stock market if it can attract foreign institutional investors who fulfill the roles of monitoring, insurance and knowledge spillover.

The impact of European Cohesion Policy: a spatial perspective

Abstract Cohesion Policy is one of the core policy areas of the European Union and one of the largest expenditure items in its budget. Its impact is the subject of intense academic and policy debate, but its effectiveness is an empirical question still open. This article contributes to this debate by performing a region-specific investigation of the direct and indirect impact of Structural Funds expenditure. We employ a heterogeneous panel data model, which accommodates the spatial dependence in a heterogeneous setting and measures heterogeneous spatial spillover effects, both inward and outward. We also consider different channels of spatial spillovers with respect to standard geographical closeness. In particular, the introduction of new measures of proximity that explicitly consider economic linkages between regions is a novel contribution to the literature. The results clearly indicate that the impact of the Cohesion Policy, while positive overall, is highly heterogeneous and the Structural Funds expenditure generates substantial heterogeneous spatial spillovers: the positive effects do not remain confined to the target regions. Finally, strong spillover effects are channelled by value-added trade connections, particularly in regions belonging to the so-called ‘Central European Manufacturing Core’.

Global value chain embeddedness, technology spillover and enterprise innovation

Innovation is the first driving force for high-quality economic development, and the global value chain (GVC) with intermediate goods as the carrier is an essential channel for international technology spillovers. This paper conducts a comprehensive examination of the impact of GVC embeddedness on enterprise innovation from the perspective of two-way embedding. An empirical test using the UIBE GVC Indicators data, Chinese Industrial Enterprise data, China Customs data, and enterprise patent data shows that GVC embeddedness significantly promotes enterprise innovation. The effect of backward embeddedness is greater than that of forward embeddedness. However, the innovation effect of GVC embeddedness is heterogeneous due to different innovation types, embeddedness depths, ownership, trade patterns, and locations of enterprises. Meanwhile, the technology spillovers are an essential channel for GVC embeddedness to promote enterprise innovation. By uncovering the role mechanism of GVC embeddedness in influencing enterprise innovation from the perspective of technology spillovers, this paper offers a new way of thinking to fully unleash the innovation effect of GVC embeddedness.

Does large-scale research infrastructure affect regional knowledge innovation, and how? A case study of the National Supercomputing Center in China

Large-scale research infrastructures (LSRIs) are widely acknowledged as a crucial instrument for venturing into the uncharted territories of science and technology, as well as contributing to the well-being of society. However, only a limited number of literature have scrutinized the impact of LSRIs, founded upon a causal inference framework. Moreover, the function of LSRIs in the advancement of innovation at the regional level remains inadequately identified. Drawing on the resource-based view, this study develops a conceptual framework that links the scientific effect of LSRIs to innovation resources in order to assess their impact on knowledge innovation (KI). Taking China’s National Supercomputing Center (NSC) as a case, three major mechanism hypotheses are proposed for the impact of NSC on KI, including basic effect, network effect, and technology effect. Using panel data from 283 cities in China from 2000 to 2020, we employ a spatial difference-in-differences estimation model to examine the impact of NSC on KI. The research finds that: (1) The construction of NSC stimulates KI in local and surrounding areas. (2) The main mechanisms by which NSC promotes KI include the increase in fiscal investment and talents in science, the improvement of digital infrastructure, as well as the enhancement of urban network centrality and innovation efficiency. (3) Geographical proximity, cooperation proximity, and digitization proximity constitute the main channels of policy spillover. (4) NSC has not shown significant promotion of regional innovation convergence, and its radiation influence needs further improvement. (5) The knowledge innovation effects of NSCs manifest heterogeneity based on the distinct knowledge orientation and innovation environment, with this impact being notably pronounced in application innovation-oriented cities such as Shenzhen. The results of this study reveal the positive yet limited impact of NSC on KI and provide a reference for other economies in the areas of LSRIs, digital infrastructure, and the formulation of place-based innovation policy.

Peer desirability and academic achievement

SummaryUsing the random assignment of university engineering students to peer groups during introductory freshmen weeks, this paper studies how a student's parental income and facial attractiveness affect the grade outcomes of peers. The results show that exposure to highly desirable peers with respect to socioeconomic background and beauty improves grades. The results operate chiefly through a direct spillover channel and also through an indirect marriage market channel, through which exposure to high‐desirability peers improves well‐being. A field experiment suggests that the marriage market mechanism is likely to be limited to students not currently in a romantic relationship.

Study on the spillover effect of digital economy development on CO2 emissions

To study the spillover effect of the digital economy development on carbon emissions, this study innovatively constructs different spatial weight matrices, based on 2011–2020 panel data covering 30 Chinese provinces, and it explores the direct spillovers, conducted spillovers, and spillovers from different spillover channels, such as human capital, service industry development, and information development of digital economy development on carbon emissions through the spatial Durbin model combined with a mediating effect model. The results show that there is significant spatial heterogeneity in digital economy development; in terms of regions, the eastern region has the highest average development level and the central region has the highest average annual growth rate. Digital economy development can directly suppress carbon emissions, and it can also indirectly suppress carbon emissions by driving technological innovation and optimizing the energy consumption structure, and there exists a spatial spillover effect. Under human capital, service industry development and information development matrices, the spatial spillover effect of digital economy development on carbon emissions is significantly negative. Regions with the same level of information development are more likely to exert a spatial spillover effect of digital economy development on carbon emissions.

Productivity effects of innovation intermediaries for SMEs: evidence from Japan’s Kohsetsushi

ABSTRACT Innovation intermediaries for small- and medium-sized enterprises (SMEs) that correct innovation system failures prevail globally. They help SMEs improve productivity through diffusion, creation and intermediation of knowledge. Empirical studies in the UK and the US matched comprehensive data of clients of innovation intermediaries with census data, performed causal inference after controlling for unobserved heterogeneity and selection bias, and confirmed their positive effects. Taking an example of the world’s largest innovation intermediaries for SMEs, Kohsetsushi, this study established unbalanced panel data (2017–2022) from online questionnaire surveys and assessed productivity effects of Kohsetsushi by estimating the difference-in-differences model combined with propensity score matching. The results confirmed the overall productivity effect of Kohsetsushi services and heterogeneous treatment effects in terms of firm size, industries and spillover channels. Research and policy implications are discussed.

The impact of domestic and foreign public green R&D on domestic green innovation

ABSTRACT This study examines the effect of both domestic and foreign publicly funded R&D in environmentally friendly technologies on domestic green innovation. Using panel data for 24 countries over the period 1994–2019 and a variety of cointegration methods, which assume non-stationary variables, we find that both domestic and foreign public R&D in environmentally friendly technologies have a significant positive effect on domestic green innovation. The evidence from the panel cointegration analysis also suggests that while foreign government-funded green R&D does not affect domestic innovation in environmental technologies through disembodied, non-trade-related spillovers, and while many imported goods are not a channel for international spillovers of public R&D in environmental technologies, international spillovers from public green R&D occur through imports of environmental goods. In addition, we find no evidence that domestic and foreign publicly funded R&D in environmentally friendly technologies crowd out non-green innovation. Our two main findings – that both domestic and foreign public environmental R&D expenditures have positive effects on domestic green innovation and that international spillovers from government-funded green R&D occur through imports of environmental goods – are robust to the application of a variety of stationary panel methods to a shorter sample that starts in 2008.

Learning from innovation award winners? Technology spillovers and firm innovation

Innovation is a vital output of knowledge resources, significantly enhancing firms' competitive advantages. Faced with outstandingly innovative competitors, firms may experience technology spillovers driven by the pressure of technological updating, thereby stimulating innovation. Based on data from Chinese listed firms from 2011 to 2019, we explore firms' reactions to innovation award winners within their product boundaries. The results indicate that firms encountering award-winning competitors experience heightened technology spillovers initiated by these outstanding peers. Unlike residual technology spillovers, award-driven technology spillovers actively promote firms' innovation activities and incentivize investment in knowledge resources. We further identify two primary channels of technology spillovers: competition and information. Under the competition channel, factors such as competitive pressure, market concentration, and market performance shape firms' responses to competitors' innovation awards. Regarding the information channel, the influence of competitors' technological advancements is more significant for firms with more politically connected competitors, non-stated-owned ownership, and those in a follower position. The findings underscore the critical role of innovation award winners in driving firm innovation.

The impacts of foreign direct investment on total factor productivity: an empirical study of agricultural enterprises

PurposeThis paper aims to examine the impact of six possible foreign direct investment (FDI) spillover channels on the total factor productivity (TFP) of Chinese agricultural enterprises and investigate the moderating role of absorptive capacity (technological acumen) on TFP spillover effects.Design/methodology/approachBased on data from 118 agricultural and related Chinese industries, the authors employ a multithreshold regression model to empirically analyze the impact of FDI on the TFP of agricultural enterprises and the threshold effect of absorptive capacity. To overcome potential endogeneity problems, the authors select the FDI stock of corresponding USA industries and the industrial access policy index as instrumental variables and re-estimate the model.FindingsThe results suggest foreign-invested agricultural enterprises are more likely to benefit from FDI, while the “aggregate” FDI spillover effect is negative for domestic agricultural enterprises. However, once threshold effects are introduced, the authors find firms “close to” (“far from”) the technological frontier experience statistically significant positive (negative) spillover effects. Similar results are obtained for virtually all FDI spillover channels for firms in both upstream and downstream industries. FDI spillovers, when they occur, can be a two-edged sword – benefiting some firms at the expense of others.Originality/valueThe authors introduce six FDI spillover channels to examine the impact of FDI on the productivity of foreign-invested and domestic agricultural enterprises. Moreover, the authors analyze the threshold effect of firms' absorptive capacity. These findings can help formulate foreign investment introduction policies based on the characteristics of agricultural enterprises with different ownership structures. These results are also beneficial for agricultural enterprises to better exploit FDI spillover effects and improve their productivity.

The information spillover role of corporate spin‐offs in financing activities: Evidence from equity sales by private firms through Regulation D

AbstractWe examine whether the increased quantity of public information has a spillover impact on equity sales by private industry peer firms. To capture an increase in the quantity of public peer information, we use corporate spin‐offs as these events cause an increase in the number of independent public entities that mandatorily disclose financial reports. Using a unique dataset on private firms’ equity sales extracted from the Securities and Exchange Commission filings pursuant to Regulation D, we find that private industry peers sell more equity following spin‐offs, but the increase is not statistically significant. When we divide our spin‐off sample based on the availability of segment information on subsidiaries before spin‐offs, however, we find a significant an increase in private firms’ equity sales after spin‐offs when parent firms did not previously disclose segment reports. Additional test results suggest that our inferences regarding private industry peers are not entirely explained by an industry‐wide demand shock. Overall, we contribute to the literature by establishing an information spillover channel, incremental to the effect of common industry shocks, flowing from the public to private markets.

Sectoral slowdowns in the United Kingdom: Evidence from transmission probabilities and economic linkages

SummaryThis paper studies spillovers across macroeconomic sectors in the United Kingdom, using data from the Bank of England's Flow of Funds statistics. We combine two different approaches to quantify the spread of economic deterioration to assess whether sectors with large bilateral economic linkages as measured through network data have a greater statistical likelihood of spillovers between them. The combination of both approaches reveals the Monetary Financial Institutions sector's role as shock absorber and identifies the most important channels of spillovers. The inferential discrepancies between network data and statistical spillovers highlight the contribution of the proposed methodology.