Working Papers
Foreign Investment and the Long Road to Development: Knowledge Diffusion in Early Twentieth-Century China (with Cheryl Wu, Yale University)
A draft can be found: [pdf].
Abstract: This paper evaluates the role of foreign direct investment as a strategy for economic development through knowledge spillovers. Leveraging the unique historical setting of China’s first opening to foreign investment in the early twentieth century, we examine how Japanese FDI affected knowledge diffusion and, in turn, domestic firm entry. Our identification strategy employs event-study designs that exploit plausibly exogenous variation in the timing of the first Japanese investment across prefectures. We find a significant difference in timing: knowledge diffusion begins immediately after the arrival of Japanese FDI, whereas domestic firm entry responds only several years later, after knowledge has accumulated. We then unpack each stage of this process. From FDI to knowledge diffusion, we find that Japanese FDI, particularly manufacturing FDI, significantly lowered the cost of accessing knowledge, as measured by the entry of local Chinese journals. This effect was stronger in areas with greater exposure to foreign trade, consistent with the interpretation that trade increased awareness of foreign knowledge while FDI facilitated its actual transmission. By contrast, we find no comparable effect of German FDI, highlighting the importance of linguistic proximity in facilitating knowledge diffusion through FDI. Consistent with this interpretation, lexicon-level evidence shows that exposure to Japanese FDI in a given product category increased discussion of product-specific scientific knowledge and promoted the adoption of Japanese knowledge codifications. Many of these codifications remain in use in contemporary Chinese, leaving a lasting imprint on China’s scientific knowledge base. Turning from knowledge to production, we find that domestic firm entry increases only after knowledge accumulation passes a critical threshold. We document a J-shaped relationship between knowledge accumulation and domestic firm entry. These findings help reconcile the limited immediate effects of FDI on domestic production documented in the literature. The absence of an immediate response by domestic firms does not imply that knowledge spillovers failed to occur; rather, knowledge can begin to diffuse upon the arrival of FDI but affect production only after sufficient accumulation.
A draft can be found: [pdf].
Abstract: This paper evaluates the role of foreign direct investment as a strategy for economic development through knowledge spillovers. Leveraging the unique historical setting of China’s first opening to foreign investment in the early twentieth century, we examine how Japanese FDI affected knowledge diffusion and, in turn, domestic firm entry. Our identification strategy employs event-study designs that exploit plausibly exogenous variation in the timing of the first Japanese investment across prefectures. We find a significant difference in timing: knowledge diffusion begins immediately after the arrival of Japanese FDI, whereas domestic firm entry responds only several years later, after knowledge has accumulated. We then unpack each stage of this process. From FDI to knowledge diffusion, we find that Japanese FDI, particularly manufacturing FDI, significantly lowered the cost of accessing knowledge, as measured by the entry of local Chinese journals. This effect was stronger in areas with greater exposure to foreign trade, consistent with the interpretation that trade increased awareness of foreign knowledge while FDI facilitated its actual transmission. By contrast, we find no comparable effect of German FDI, highlighting the importance of linguistic proximity in facilitating knowledge diffusion through FDI. Consistent with this interpretation, lexicon-level evidence shows that exposure to Japanese FDI in a given product category increased discussion of product-specific scientific knowledge and promoted the adoption of Japanese knowledge codifications. Many of these codifications remain in use in contemporary Chinese, leaving a lasting imprint on China’s scientific knowledge base. Turning from knowledge to production, we find that domestic firm entry increases only after knowledge accumulation passes a critical threshold. We document a J-shaped relationship between knowledge accumulation and domestic firm entry. These findings help reconcile the limited immediate effects of FDI on domestic production documented in the literature. The absence of an immediate response by domestic firms does not imply that knowledge spillovers failed to occur; rather, knowledge can begin to diffuse upon the arrival of FDI but affect production only after sufficient accumulation.
Foreign Trade and Industrialization: Evidence from Early Republican China
A draft can be found: [pdf].
Abstract: Existing literature provides mixed evidence on the effects of foreign trade on industrialization in developing countries. Leveraging the unique historical setting of China during the Early Republican period (1908–1926), I distinguish between two opposing forces: competition and technology transfer. I exploit exogenous variation in foreign trade access induced by international political shocks for identification. I find that better access to foreign consumer goods discouraged domestic firm entry, while better access to foreign capital goods encouraged entry. The effects of foreign trade depend not on the overall level of access, but on the relative strength of these two forces. Domestic producers were all highly responsive to aggregate foreign trade access, but those in better institutional environments were more responsive to industry-specific signals. The interaction between competition and technology transfer shows a distinction. At the aggregate level, access to technology appears to have been the binding constraint, and producers were more responsive to one force when the other force was favorable. At the industry-specific level, however, competition became more important, and producers were more responsive to one force when the other force was less favorable.
Rise of the Red (with Elizaveta Brover, Yale University)
Working paper upon request.
Abstract: How did communism spread across borders from the Soviet Union to China? We document the international book trade as a leading channel of transmission. Following the Russian Revolution in 1917, we show that Soviet book exports were primarily made up of Bolshevik tracts using LLM classification of newly compiled book data. Using granular port-level commodity trade data, we provide causal evidence that exposure to Bolshevik books increased the number of labor strikes in China. Labor strikes were crucial to the rise of the Chinese Communist Party (CCP). We construct a BLP-style instrument to address the endogeneity concerns associated with the supply and demand of Bolshevik books. By documenting a strong, positive, and significant relationship between Soviet book imports and labor strikes, this paper brings to light a previously underexplored international channel for the rise of the CCP.
Foreign Trade in Times of Civil Conflict: Evidence from China during the Warlord Era
A draft can be found: [pdf].
Abstract: The lack of domestic market integration had long hindered the movement of foreign goods within China. This paper identifies civil conflict during the Warlord Era (1912–1928) as a key source of internal trade barriers. Using a gravity model, I show that belonging to different military factions significantly increased bilateral trade costs between provinces and treaty ports. Leveraging the 1917 Russian Revolution as a supply shock and employing a shift-share instrumental variable design, I show that demand for foreign goods was highly elastic. Imports would have been significantly higher in the absence of civil conflict.