Research

1. Local Economic Effects of the Post-Cold War Procurement Drawdowns Working Paper
   Abstract

   Economic convergence has slowed across places. In the effort to identify factors causing regional disparities, a decline in manufacturing has been cited as a possible culprit. This paper looks through a new angle, a downsizing procurement, and examines the impacts on economic disparities across areas. With the end of the arms race between the USA and the Soviet Union, the US adopted a much more modest defense policy: the domestic defense procurement dropped by more than 40% over a decade. I estimate the causal effects of the drawdowns with an instrumental-variable approach by exploring different procurement types across geographies in the Cold War era. I find that defense drawdowns significantly affected the local labor market at the county level: reducing contracting worth $1,000 per capita in the most impacted defense industries decreases industrial employment by 0.3-0.4 percentage points directly. The other manufacturing sectors cannot entirely absorb the reduced employment in the flagship defense-related sectors. Estimates also show a net adverse spillover effect on the local non-tradable sector, with a magnitude of one-third of the direct impacts. In contrast to declining employment, few impacts were on the civilian wage and the number of establishments. Investigations on the exit options find that the local population responds to a lower labor demand through reduced in-migration but no evidence of increased out-migration. Evidence of workers' limited exit options suggests the need for remedy programs such as place-based policies to alleviate the disproportionate allocation of adverse labor market impacts.
2. The Impacts of International Students on Local Product Markets: Evidence from College Towns
   Work in Progress
   Abstract

   In the last 20 years, the total number of students from abroad at U.S. colleges and universities almost doubled, from 0.54 million in 2000 to 1.09 million in 2017. This paper evaluates the expenditure impacts of the massive inflows of international students who pursue higher education in the United States. Focusing on college towns – cities with a non-negligible size of college students – the analysis exploits the variation in international student enrollment, and estimates the causal effects on selected non-traded industries. With an instrumental variable to control for confounding factors, the result supports the existence of a demand effect and quantifies its magnitude: an increase of 500 international college students in a city with 50,000 baseline population brings about six more food and drinking places. The positive effects are concentrated in small-sized establishments. This paper adds to the impact analysis of international students through the lens of local product markets.
3. Sharp Instrument: A Stab at Identifying the Causes of Economic Growth, with Reda Cherif (IMF), Fuad Hasanov (IMF)
   IMF Working Paper No. 18/117, available at SSRN
   Abstract

   We shed new light on the determinants of growth by tackling the blunt and weak instrument problems in the empirical growth literature. As an instrument for each endogenous variable, we propose average values of the same variable in neighboring countries. This method has the advantage of producing variable-specific and time-varying—namely, “sharp”—and strong instruments. We also introduce “bias norms” to test the sensitivity of the estimates to the potential invalidity of our instruments. The estimations show that export sophistication is a relatively robust determinant of growth compared to other standard growth determinants such as human capital, trade, financial development, and institutions. Other growth determinants may be important to the extent they help improve export sophistication.
4. Cheaper Drugs but Higher Bills?, with Jiafeng Wu (UVA)
   Work in Progress
   Abstract

   The financial burdens of high medical spending are a challenge many countries face, partly due to high prescription medicine prices. In this paper, we leverage a national experiment that imposed a zero markup policy (ZMP) on medication sales and provide new evidence of its effectiveness in reducing patients' financial burdens. Using a unique administrative healthcare claim dataset covering all inpatient visits in a city's comprehensive public hospitals, we employ a differences-in-differences strategy to examine the average changes in spending across various categories resulting from the ZMP reform implemented in China in 2017. While average medicine expenses decreased, there was a significant increase in other service categories, ultimately resulting in only a marginal reduction in the average medical bill. Specifically, we find that after ZMP, patients in general-purpose hospitals were charged more for medical consumables, whereas those in traditional Chinese medicine hospitals ended up purchasing more Chinese treatment materials. Notably, our data also reveals suggestive transfers of financial burdens across different diagnosis groups, with patients diagnosed with specific diseases incurring higher service expenditures than others. These findings suggest that, without changes to compensation structures, physicians may pass on lost revenue to patients through various channels, potentially resulting in patients paying the same or even higher bills.