nep-cna New Economics Papers
on China
Issue of 2013‒06‒16
two papers chosen by
Zheng Fang
Ohio State University

  1. Exporting and Innovation: Theory and Firm-Level Evidence from the People's Republic of China By Lin, Faqin; Tang, Hsiao Chink
  2. Foreign Institutional Investors and Stock Market Liquidity in China: State Ownership, Trading Activity and Information Asymmetry By Ding, Mingfa; Nilsson, Birger; Suardi, Sandy

  1. By: Lin, Faqin (Central University of Finance and Economics); Tang, Hsiao Chink (Asian Development Bank)
    Abstract: This paper investigates how exporting affects firm innovation. We embed innovation into a firm heterogeneity model with productivity, where in equilibrium the model shows that exporters invest more in innovation, such as research and development (R&D), than non-exporters. Using firm-level data from the People’s Republic of China (PRC), we apply the Levinsohn and Petrin (2003) method of estimating firm productivity and matching econometrics to control for endogeneity. The results show, on average, in contrast to non-exporters, exporters increase their R&D intensity by more than 5%, raise their R&D expenditure by more than 33%, and are 4% more likely to engage in R&D activity. In addition, we find exporting to have a smaller impact on innovation among firms that export processed goods, specifically, those in the electronics sectors, located in coastal provinces, and foreign-owned.
    Keywords: Exporting; innovation; firm heterogeneity; matching
    JEL: D21 F14 O31
    Date: 2013–04–01
  2. By: Ding, Mingfa (Department of Economics, Lund University); Nilsson, Birger (Department of Economics, Lund University); Suardi, Sandy (La Trobe University)
    Abstract: The Chinese government has implemented the Qualified Foreign Institutional Investor (QFII) system in order to promote stock market liquidity by participation of foreign institutional investors. This paper is the first to explicitly identify the channels through which foreign institutional investors influence the liquidity on the Chinese stock markets. Firstly, we find that market participation by foreign institutional investors promotes liquidity both for state-owned enterprises (SOEs) and non-SOEs. Secondly, foreign institutions influence liquidity through the informational frictions channel, but not through the real frictions channel. Thirdly, as implied by these two results, foreign institutions are not informationally disadvantaged when investing in SOEs. Finally, the link between foreign institutional participation and liquidity remains strong before, during, and after the recent financial crisis.
    Keywords: liquidity; emerging markets; foreign institutional investors; real frictions; informational frictions
    JEL: C23 G12 G18 G32
    Date: 2013–04–23

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