Three essays in development economics and political economy
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Abstract
This dissertation consists of three chapters studying topics in political economy and development. In the first chapter, I study how firms’ participation in development programs influences credit allocation by state banks, focusing on China’s Targeted Poverty Alleviation (TPA) scheme. To identify the causal effect of firms’ participation, I develop an IV strategy based on the share of a firm’s senior managers born in poor counties. I find that TPA participation improves firms’ credit access and reduces borrowing costs. Firms use new loans to finance production, leading to higher sales and profits. I argue that these results are best explained by favor exchange between governments and firms, in which firms help governments achieve political goals and earn rents in return.
In the second chapter (joint with Siddharth George), we study how being admitted via affirmative action affects minority students in university. Our identification strategy exploits a unique feature of Chinese college admissions, where minority students receive bonus points. We estimate an RD design, comparing minority students who scored just above the cutoff (and were admitted on merit) against minority students who scored just below the cutoff (and were admitted to the same college via affirmative action). We find that students admitted via affirmative action have significantly lower self-image, weaker social relationships and perform worse academically. Our results suggest that affirmative action triggers impostor feelings among minority students, which may hurt their performance in elite environments. Placebo tests of students who receive merit-based bonus points support this interpretation.
In the third chapter (joint with Junxue Jia, Yongzheng Liu, and Jorge Martinez-Vazquez, European Journal of Political Economy 2021) we use a nationwide city-level panel dataset for China for the years 1999-2009 and examine the effects of vertical fiscal imbalances (VFI) on local fiscal discipline and explicitly explore the institutional conditions under which these effects may take place. We find that higher VFI levels induce fiscal indiscipline by reducing tax effort of local governments. We show that local governments respond to the presence of the VFI by lowering their tax effort on local taxes, but do not do so for shared taxes. In addition, we show that the (in)disciplining effect of the VFI is not present for extra-budgetary revenues, which reflects the institutional fact that extra-budgetary revenues are not considered for the determination of central fiscal transfers to local governments, thus creating no incentive for local governments to respond in this area.