Three essays on modern economic development in China
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This dissertation studies three topics in modern Chinese economic development. The problems tackled include the determinants of city size distribution and economy growth, the impact of privatization of the state-owned enterprises (SOEs), and the relationship between executive compensation and firm-level risk. Chapter 1 documents the emergence of Zipf's law in China, using a new database containing population and other information for Chinese cities in 34 years during 1918-2008. I show that during much of the "Revolutionary" (i.e. Maoist) period, there were systematic deviations from Zipf's law; in particular, small cities grew more rapidly than large cities due to restrictions on internal migration. However, since Deng Xiaoping's famous economic reforms, migration has been less restrictive, and the city-size distribution in China has rapidly converged to Zipf's law, similar to the pattern observed in developed, "capitalist" economies. Chapter 2 studies a key feature of economic development in China today, namely, the privatization of state-owned enterprises (SOEs). My analysis uses a firm-level panel data set derived from primary sources, which is a significant improvement over previous studies. Using a difference-in-difference, "event-study" style analysis, I show that privatization leads to substantial downsizing of employment, increasing labor productivity, and rising profitability. Chapter 3 studies the relationships among firm size, select features of executive compensation (cash and stock-holding) and risk-taking, using a new database of 197 financial institutions in China, focusing in particular on the behavior of executives during the recent global financial crisis. The empirical results show that stock holding correlates with a reduction in risk-taking during the crisis but cash compensation evidently did not adjust in this manner. I find no evidence of a change in risk associated with an expansion of firm size. Although based on "historical" evidence, these results may be useful for risk management by financial firms in future crises.