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Andrei Victor Potlogea

Universitat Pompeu Fabra, Barcelona, Spain

Authors: Wenya Cheng and Andrei Potlogea

Abstract: We study the effect of improvements in foreign market access brought by China's WTO accession on Chinese local economies. We exploit cross-city variation in these improvements stemming from initial differences in sectoral specialization and exogenous cross-industry differences in US trade liberalization that originate from the elimination of the threat of a return to Smoot-Hawley tariffs for Chinese imports. We find that Chinese cities that experience greater improvement in their access to US markets following WTO accession exhibit faster population, output and employment growth as well as increased investment and FDI inflows. The benefits of WTO membership for Chinese local economies are augmented by significant local spillovers. These spillovers operate both from the tradable to the non-tradable sector and within the tradable sector. Within the tradable sector, spillovers are transmitted primarily via labor market linkages. We find important local demand linkages from the tradable to the non-tradable sector. Most local service sectors benefit from trade liberalization. In particular, our evidence suggests that increased investment demand caused by trade liberalization drives financial sector growth. We find little effect of trade liberalization on local wages. Alongside our results on population and employment, this indicates that local labor supply elasticities are high in our setting. Our findings can be explained by a Lewis model of urbanization that combines geographic mobility with an abundant reserve of labor.

JEL classification: E22, E23, E24, F13, F15, F16, F63, F66, J61, O18, O19, R12, R23

Keywords: trade liberalization, development, China, WTO, local economies 

Full Text:  “Trade Liberalization and Economic Development: Evidence from China's WTO Accession”

Audinga Baltrunaite

Institute for International Economic Studies (IIES), Stockholm University, Sweden

Author: Audinga Baltrunaite

Abstract: Can political donations buy influence? This paper studies whether firms trade political contributions for public procurement contracts. To answer this question, I focus on the Lithuanian political economy. Combining data on a large number of government tenders, the universe of corporate donors and firm characteristics, I examine how a ban on corporate donations affects the awarding of procurement contracts to companies that donated in the past. Consistent with political favoritism, contributing firms’ probability of winning goes down by five percentage points as compared to that of non-donor firms after the ban. Among different mechanisms, the hypothesis that corporate donors get confidential information on competing bids prevails. The empirical results are in line with predictions from a first-price sealed-bid auction model with one informed bidder.  Evidence on firm bidding and victory margins suggests that contributing firms adjust their bids in order to secure contracts at a maximum revenue. I assess that tax payers save almost one percent of GDP thanks to the reform.

Keywords: political finance, public procurement, contributing firms, rent-seeking.

JEL classification: D72, H57.

Full Text:  “Political Finance Reform and Public Procurement: Evidence from Lithuania”