The Institute is delighted that it has awarded 10 grants for unique research conducted on a broad range of emerging market related issues for the year 2015. 

HKUST IEMS Research Grants support high-quality research that provides valuable insights into the challenges facing businesses and governments in emerging markets. The Institute encouraged collaborative proposals among HKUST faculty and with researchers outside HKUST.  Priority is given to collaborative research projects that are oriented around the Institute's focus research themes, as well as proposals that contribute to ongoing Institute’s research initiatives on the topics of Belt and Road and Digital Economy.

Suppression or Diffusion? Effects of Foreign Direct Investment on Labor Rights Protection in Emerging Market Countries 

Hye Jee Cho, Assistant Professor, Division of Social Science

When capital is mobile internationally but labor is not, do workers suffer? The conventional answer to this question is that governments have a strong incentive to refrain from protecting workers’ rights in order to gain a competitive advantage in the world market. However, those who are optimistic about economic globalization posit that increased economic integration will lead to improvements in labor rights around the world, because economic globalization can transmit superior human rights norms generally and better labor protection specifically. Despite the significance of the question, relatively few studies are devoted to understanding the question, and the literature suffers theoretical and empirical problems. Therefore, this proposed research will examine how the effects of foreign direct investment (FDI) on labor rights and regulations differ depending on the source countries and industries, using improved and textured data on FDI and labor rights in emerging market countries around the world. [More]

Equity Crowdfunding in China: An Exploratory Study

Sam Garg, Assistant Professor, Department of Management / Kellee Sing Tsai, Professor of Social Science

The proposed project is an exploratory study of equity crowdfunding in China. While most research on crowdfunding focuses on the relative success of fundraising efforts in prepaid/rewards-based crowdfunding projects, we seek to understand what happens after fundraising in the under-examined format of equity crowdfunding (EC). Specifically, what types of formal and informal governance institutions are established in EC-backed firms following the mobilization of funding? What is the relationship between governance and performance in EC-backed firms vs. comparable firms that obtain equity financing from venture capital (VC) firms? The co-PIs will explore these issues through multi-case, inductive research methodology, involving four or more firms in each category (EC- and VC-backed), operating in similar locations and sectors. Our findings will have policy implications for China’s emergent regulatory regime for internet finance; and theoretical implications for research on entrepreneurship, corporate governance, financial development, and institutional innovation in emerging market economies. [More]

National Expressway Expansion, Trade integration and Pollution: Micro-Evidence from 60,000 Industrial Plants in China 

Guojun He, Assistant Professor, Division of Social Science, Environment and Economics

The fast expansion of China’s National Expressway System (guojia gaosugonglu wang) since 1990s not only connects the large metropolitan urban cities, but also small peripheral rural counties. By exploiting this largescale natural experiment, the proposed research tries to provide micro-evidence on the environmental consequences of domestic trade integration. Using pollution data from more than 60,000 industrial plants, we test the Pollution Haven Hypothesis, which conjectures that rich regions are shifting “dirty” production to poor regions with lax environmental standards. Particularly, we investigate whether existing plants emitted more pollution and whether more polluting plants were born in counties connected by expressway. We address the endogeneity concern of non-random placements of expressway routes using an instrumental variable strategy based on the archaeological concept of least cost triangulation network. [More]

Agglomeration, Competition, and Firm Capability: Evidence from China and India 

Yao Amber Li, Assistant Professor, Department of Economics

Long-standing theories have emphasized the efficient or growth-enhancing role of industrial clusters driven by demand patterns, fixed geographic features, or external economies of scale. This paper examines whether agglomeration is also associated with anti-competitive, even collusive forces. We motivate empirical tests by contrasting a model of agglomeration economies with one where proximity enables collusion. We then use data from Chinese and Indian manufacturing firms (1999- 2008 and 1996-2011, respectively) to study the relationship between industrial agglomeration and competition. We measure competition directly using firm markup, but also indirectly using the marginal product of capital as a proxy of excess capacity used to deter entrants. Using the wide variation in agglomeration over the panel both within and between industries, we aim to empirically examine the relationship between market power and industrial agglomeration/clusters in order to better evaluate the impacts of development policies that promote or support industrial clusters and entrepreneur innovation. [More]

A Model of China’s Shadow Banks and Market Determined Interest Rate Reform

Xi Li, Assistant Professor, Department of Accounting

We plan to develop a dynamic general-equilibrium model to show that the lack of market determined interest rates is critical in explaining the rapid rise of the unstable shadow banks and a range of related misallocation about China's economy: lower real interest rates do not stimulate consumption, consistent asset bubbles, the liquidity trap through which funds cannot go to small and medium enterprises and private owned enterprises (POEs) but instead go to high risk sunset industries, economic imbalance in terms of overreliance on investment, state owned enterprises’ (SOE) predatory acquisitions of POEs. We show the importance of a specific sequence for interest rate reform, which so far has not been adopted by Chinese government and thus leads to even bigger misallocation that that if China has not conducted the current partial interest reform. Specific policy recommendations and other macroeconomic implications of this model and for other emerging economics are discussed. [More]

Value of Chinese Patents: Evidence from the Chinese Patent Inventor Survey

Naubahar Sharif, Associate Professor, Division of Social Science

How valuable are Chinese patents really? Critics have long argued that the value of Chinese patents is low given the variety of attractive government benefits accorded to those who apply for patents. Using the inventor survey approach (one of three major approaches used to estimate the value of patents), I attempt to uncover the value of Chinese patents. The data source for the study—the Chinese Patent Inventor Survey conducted by the China State Intellectual Property Office (SIPO)—is unique insofar as no academic research literature has hitherto made use of this data source (with the SIPO survey having been conducted since 2008) to estimate the value of Chinese patents. Using 145,597 enterprise- completed questionnaires from SIPO surveys conducted from 2008 through 2013, my estimates provide evidence relating to the debate on the impact of government subsidies on patenting activities in China. [More]

Evaluating Spillover Effects of the Trader Agent Intermediated Lending Scheme on Non-borrowers

Sujata Visaria, Assistant Professor, Department of Economics

Our previous research shows that the Trader Agent Intermediated Lending (TRAIL) scheme can increase the credit access of poor households, successfully select productive farmers and increase agriculture incomes. In a new pilot project we will implement three variants of the TRAIL scheme aimed at understanding the role of selection incentives versus monitoring by the agent. In addition to endline surveys with an evaluation sample, we plan to conduct a baseline survey and endline surveys with a purposive sample of households in both treatment and control villages based on propensity to participate in the scheme. This will allow us to collect data prior to selection, as well as examine spillover effects of the scheme on non-participating households. [More]

Industrial Upgrading, Structural Change, and Middle-Income Trap 

Yong Wang, Assistant Professor, Department of Economics

Since the second World War, only thirteen middle-income economies have successfully become high- income economies, whereas more of them have failed to converge to rich countries. This growth phenomenon is called the middle-income trap. How to avoid the middle-income trap is a key challenge facing almost all the emerging markets including BRICS. Unfortunately, there are few, if any, formal models and structural quantitative investigations specifically trying to explain the middle-income trap. The primary objective of this research is to develop formal models that highlight the role of structural change and industrial upgrading in explaining the middle-income trap and then conduct quantitative investigations on policies and welfare, based on which we provide policy recommendations for emerging markets. We believe that exploring the obstacles for structural change and industrial upgrading is a promising new angle because it exploits structural differences. [More]

Place-based Policies, Innovation and Entrepreneurship: Evidence from China’s Economic Zones

Jin Wang, Assistant Professor, Division of Social Science

The proposed project will compile and analyze data to examine the micro-impact of a prominent place-based program in China - the Economic Zone: implementing special policies in an area within a jurisdiction, the goals of the zones are to increase foreign direct investment (FDI), domestic investment, international trade, technological cooperation and innovation, and employment. We plan to exploit a natural experiment in the establishment of China’s economic zone. Using firms as the unit of analyses, we aim to answer two questions. First, does the zone program boost firms’ investment, employment, innovation and productivity? Second, what characteristics of targeted localities and programs are effective in promoting local entrepreneurship and technology progress? The findings of the project shed light on how place-based policies help nurture innovation and entrepreneurship in developing countries. This greatly complements the existing literature, which has focused on the impact of such policies in the United States and in Europe. [More]

Product Market Response to Corporate Governance Shocks: Evidence from India 

Alminas Zaldokas, Assistant Professor, Department of Finance / Abhiroop Mukherjee, Assistant Professor, Department of Finance

In 2000, India has adopted a major corporate governance reform (Clause 49) that required the adoption of audit committees, a minimum number of independent directors, and CEO/ SFO certification of financial statements and internal controls. While initially the largest firms were required to adopt these changes, later the reform extended to the mid-sized firms, and finally to the smaller firms. In this research we plan to adopt regression discontinuity analysis to explore how corporate governance shapes operating strategies of affected firms. In particular, given rich source of data, we plan to study whether improvements in corporate governance led to higher productivity, larger output, and higher prices. Moreover, we plan to study how governance affects the investment in new capacity and inventory behavior . Finally, we will also address the spillovers effects: whether firms’ suppliers and customers also benefit from corporate governance changes, and their unaffected rivals accelerate their own corporate governance changes. [More]