Dissertation on the impacts of floods and trade war on the Chinese economy

• Main Author: ZHENG, Fan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: Floods; Natural Disasters; Firm Performance; Chinese Economy; Trade War; Elasticity Estimation; Regional Labor Market Adjustment; Welfare Analysis; Asian Studies; Economics; Labor Economics
• Online Access: https://ink.library.smu.edu.sg/etd_coll/500; https://ink.library.smu.edu.sg/context/etd_coll/article/1498/viewcontent/GPEC_AY2018_PhD_Fan_Zheng.pdf
• Institution: Singapore Management University

In the first chapter of the dissertation, we study the impact of floods on microlevel firm performances in China for the period 2000-2009. Among the first in the literature, we identify the flood exposure directly at the firm level by combining the high-resolution satellite-observed inundation areas with the geocoded firm locations. We find that being hit by a flood is associated with an annual loss to output and productivity of around 6% and 5%, respectively, which persists in the long run. The impacts of floods extend to non-inundated firms in neighborhoods (of 4 kilometres in radius), but the negative effects are much smaller (2% on average) and diminish after three years. Firms in the surrounding area but located beyond the immediate neighborhood expand their output from the third year onwards, in contrast with the permanent shrinkage of the inundated firms. For inundated firms, the aggregate output losses in the immediate year of and one year after the flood are estimated to be 165.5 billion RMB (0.12% of total GDP) and 200 billion RMB (0.15% of GDP), respectively, across years 2000-2009. In the second chapter, we follow the micro-to-macro approach of Fajgelbaum et al. (2020) to analyze the impacts of the 2018-2019 U.S.-China trade war on the Chinese economy. We use highly disaggregated trade and tariff data with monthly frequency to identify the demand/supply elasticities of Chinese imports/exports, combined with a general equilibrium model for the Chinese economy (that takes into account input-output linkages, and regional heterogeneity in employment and sector specialization) to quantify the partial and general equilibrium effects of the tariff war. In the third chapter, we extend the China-ROW setup discussed above to a China-U.S.-ROW framework that incorporates general equilibrium adjustments in both the Chinese and the US economies in response to the trade war. We further explore the role of input-output linkage in transmitting the impacts by conducting counterfactual analyses in which we allow the tariff policies to be implemented sector by sector. The aggregate loss to the Chinese economy was estimated to be $54.5 billion (0.44% of 2017 GDP), which is twice the loss experienced by the U.S. economy ($27.7 billion). In contrast to the result that the U.S. consumers of imported goods took most of the losses, the majority of the adverse impacts on the Chinese side was borne by its exporters: The MFN tariff cuts implemented by the Chinese government helped cushion the negative impacts on its importers substantially, but at the cost of its producers, resulting in an overall larger aggregate loss.