Quid Pro Quo, Knowledge Spillover, and Industrial Quality Upgrading: Evidence from the Chinese Auto Industry
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SpeakerJie Bai, Harvard University
Date & Time
LocationThis is a Virtual Event.
While there is a vast body of research on the benefits of FDI in developing countries, whether and how the form of FDI matters have received limited attention. This paper studies the impact of FDI via quid pro quo (technology for market access) on facilitating knowledge spillover and quality upgrading. Our context is the Chinese automobile industry, where foreign automakers are required to set up joint ventures (the “quid”) with domestic automakers in return for market access (the “quo”). Using a unique dataset of detailed vehicle quality measures along multiple dimensions, we show that affiliated domestic automakers adopt more similar quality strength as their joint ventures, compared to non-affiliated pairs. The results suggest that quid pro quo spurs additional knowledge spillover to affiliated domestic automakers, in addition to any industry-wide spillover. The identification relies on within-product quality variation across different dimensions, and the results are robust to a variety of specifications. We rule out endogenous joint venture network formation, over-lapping customer base, or direct technology transfer via market transactions as alternative explanations. Analyses leveraging additional micro datasets on worker flows and shared upstream suppliers among automakers demonstrate that labor mobility and supplier network are important channels in mediating knowledge spillover. On the other hand, while quid pro quo facilitates learning, such a requirement is not a prerequisite for knowledge spillover. Counterfactual exercises show that quid pro quo is not the primary driver of the overall quality improvement experienced by domestic automakers.
About the speaker
My research focuses on microeconomic issues of firms in developing countries and emerging markets. My recent projects have examined firms’ incentive and ability to build a reputation for quality, the relationship between economic growth and corruption, and the impact of internal trade barriers among Chinese provinces on resource misallocation, firm performance and export activities. Other ongoing work includes studying firms’ quality upgrading dynamics and reputational forces in export markets. I received my Ph.D. in Economics from MIT in June 2016 and spent one year at Microsoft Research NE prior to joining Harvard Kennedy School.