Two essays on industrial economics in China

Abstract

My thesis consists of two studies on industrial economics in China that both focus on health-related areas. The first chapter studies the effects of hospital size on hospital productivity. The second chapter estimates the impacts of the SARS epidemic on manufacturing firms in China. The first chapter estimates the size-productivity effect in a hospital context. Its major challenge is to obtain productivity from a service industry. I first develop an empirical methodology by embedding the utilization rate into the service firms’ production function and use this method to estimate hospital productivity from a hospital-level dataset. I further discuss the mechanisms through which the positive size-premium can be translated into hospital productivity. My empirical results can be summarized as the following four points. First, my approach generates plausible estimated output elasticities of the hospital production function with a relatively large weight of medical labor. Second, my findings confirm a significantly and substantially positive effect of hospital size on hospital productivity. Third, both economies of scale and learning-by-doing channels significantly contribute to the hospital productivity growth, while the latter dominates. Fourth, a public hospital gains more additional productivity benefits through its past experience than a private hospital does, while such heterogeneity is not presented across hospitals of different ownership and ages. The second chapter studies the impacts of the 2002-2003 Severe Acute Respiratory Syndrome (SARS) epidemic on manufacturing firms in China. To establish a solid causal relation, I construct a novel instrument and propose an instrumented difference-in-differences estimator. Based on the firm-level data from the Chinese manufacturing industries, I find the short-term but significantly negative impacts of the SARS epidemic on firms’ outputs. The mechanism analysis shows that these adverse effects mainly come from the supply side rather than the demand side. In particular, the epidemic-induced uncertainty deters firms’ decisions on investment, and causes the inertia in entry and exit decisions; moreover, the epidemic also results in the disruptions of supply chains, thereby leading to a decrease in firms’ material inputs. My heterogeneity analysis affirms the large heterogeneity of SARS impacts in terms of firm size, ownership, and local Internet penetration.