Date of Degree

6-2022

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Sangeeta Pratap

Committee Members

Zadia M. Feliciano

Matthew J. Baker

Subject Categories

Growth and Development | International Economics | Macroeconomics

Keywords

Market Power, Labor Share, Wage Dispersion, Synthetic Control, Municipality, Capital Control

Abstract

This dissertation consists of three chapters that cover topics on macroeconomic policies.

Chapter 1 - Markups, Labor Share, and Wage Dispersion.

Increasing market power has an impact on labor market behavior. This paper argues that the decline in the aggregate wage after 1980 comes from both increasing aggregate product markup and decreasing aggregate labor markdown. Most of the decline is driven by the sharp decline in lower wage percentiles, which also contributes to the increasing wage dispersion. Further, both firms’ monopoly and monopsony power play important roles in explaining the decline in the aggregate labor share. I build a heterogeneous firm model that features endogenous variable markup and wage dispersion, which shows that firms’ market power in both product and labor markets are equally important in explaining the decline in the labor share. The most important channel of the decline in the aggregate wage is the decline in the wage at the lower percentiles and the increase in wage dispersion through firm monopsony power.

Chapter 2 - Do Direct-administered municipalities work? Evidence from Chongqing municipality in China (with Jiakai Zhang).

It has been widely observed that China has experienced a high growth rate. The central government has tried to implement several policies to promote local economic development after the 1978 economic reform. This paper draws upon a quasi-experiment in China’s regional administrative hierarchy to investigate the effect of a city-upgrading policy. This policy upgrades prefecture-level cities to municipalities with the same administrative level as the provinces. Chongqing is the only city recently designated as the municipality in 1997. Due to a small number of treated and control units, this paper adopts the synthetic control method. We find that the city-upgrading policy increased Chongqing’s GDP by more than 40% on average in the following four years after 1996. Additionally, we also find the positive spillover effects of the municipalities on economic growth using the spatial panel model. Finally, we examine the direct and spillover effects of the municipalities on various aspects, including foreign direct investment, urbanization, local government revenue, and total factor productivity.

Chapter 3 - On the Effectiveness of Capital Controls: A Synthetic Control Method Approach (with Richard J Nugent III).

We evaluate financial stability and capital flows management objectives of capital controls in the context of four capital control events: removing or imposing controls on capital inflows and removing or imposing controls on capital outflows. Using the synthetic control method, we solve the endogeneity problem between the decision the use capital controls and the outcomes of interest. We find new evidence that capital controls are not consistently effective in reaching financial stability outcomes but are consistent in reaching capital flows management outcomes. We compare our results to estimates using difference-in-difference and carry out placebo analysis. Finally, we use synthetic difference-in-difference to correct for the parallel trend bias and show that the results still hold.

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