Essays on development economics of China

Abstract

The first chapter of the thesis investigates the effect of tougher environmental regulations on economic growth. Our identification uses the Two Control Zones policy implemented by the Chinese government in 1998. City-level estimation shows a positive effect of environmental regulation on GDP growth. Further sector-level analysis suggests an economic composition change and industry restructuring in regulated cities, i.e., resources are reallocated from polluting industries and non-TCZ cities to less polluting industries in TCZ cities. Meanwhile, the share of tertiary industry in total GDP rises significantly in TCZ cities as well. Therefore, our results suggest a \win-win" situation between economic growth and environmental quality. The second chapter studies the impact of FDI liberalization in China on the aggregate productivity growth. We show evidence that expansion of FDI lead to substantial productivity growth for the whole manufacturing industry. By utilizing different types of aggregate productivity decomposition, our results identify the substantial difference in mechanism for aggregate productivity growth between FIEs and non-FIEs. The resource reallocation among FIEs plays an important role in aggregate productivity growth and leads tomore efficient allocation, while the resource misallocation still remains among non-FIEs. We also provide industry-level analysis to identify the FDI liberalization on resource (mis)allocation.