1.0 Administrative Barriers, Market Integration and Economic Growth: Evi
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Essays in Development and Behavioral Economics by Yi Han B. A. in Economics, Renmin University of China, 2012 M. A. in Economics, Renmin University of China, 2014 Submitted to the Graduate Faculty of the Dietrich School of Arts and Sciences in partial fulfillment of the requirements for the degree of Doctor of Philosophy University of Pittsburgh 2020 UNIVERSITY OF PITTSBURGH DIETRICH SCHOOL OF ARTS AND SCIENCES This dissertation was presented by Yi Han It was defended on April 3rd, 2020 and approved by Daniel Berkowitz, Department of Economics. University of Pittsburgh Thomas Rawski, Department of Economics. University of Pittsburgh Yogita Shamdasani, Department of Economics. University of Pittsburgh Jason Cook, Department of Economics. University of Pittsburgh George Loewenstein, Social and Decision Sciences. Carnegie Mellon University Dissertation Director: Daniel Berkowitz, Department of Economics. University of Pittsburgh ii Copyright © by Yi Han 2020 iii Essays in Development and Behavioral Economics Yi Han, PhD University of Pittsburgh, 2020 Along with the reduction in transportation costs in the last two centuries, institu- tional trade barriers have become increasingly important obstacles to further market in- tegration. In Chapter 1, I examine the impact of a policy reform in China that removed inter-regional administrative trade barriers by incorporating counties into prefectures with a larger market. Using a difference-in-differences approach, I compare incorpo- rated counties, both before and after the reform, to two novel control groups: counties that applied for incorporation but failed and counties that were incorporated several years later. I find that the reform immediately and persistently increased the economic growth of incorporated counties. Several sources of evidence suggest that treated coun- ties experienced relatively rapid growth because they became more integrated into the domestic market. In Chapter 2, using data from the one-child policy in China (OCP), Yiming Liu and I provide first field evidence for responsibility-shifting through delega- tion. We compare the impact of the OCP on parents who experienced it during Phase I when local governments were the enforcer, versus Phase II when the enforcement was delegated to civilians by incentivizing them to report neighbors’ violations. We find, con- sistent with responsibility-shifting, exposure to the OCP in Phase I reduces people’s trust in local governments, but exposure to it in Phase II only reduces people’s trust in neigh- bors, not their trust in local governments. In chapter 3, George Loewenstein, Yiming Liu and I designed an online experiment to investigate correspondence bias - when draw- ing inferences about a person’senduring characteristics from her actions, people tend to overly emphasize the role of the person’senduring characteristics and underestimate the influence of transient situational factors. We build a simple model to formalize this bias and test the predictions of the model. We find evidence of the existence of correspon- dence bias. Moreover, we show experiencing the games by oneself instead of observing it reduces the bias, and providing counterfactual information on how the benign-game iv (malign-game) player behaves in the malign-game (benign-game) eliminates it. Keywords: Market integration, Local protectionism, Delegation, Responsibility- shifting, Correspondence bias. v Table of Contents 1.0 Administrative Barriers, Market Integration and Economic Growth: Evi- dence from China ......................................1 1.1 Introduction . .1 1.2 Background . .7 1.2.1 Local Protectionism . .7 1.2.2 Institutional Background . .8 1.2.3 Two Special Features . 10 1.3Data............................................ 13 1.4 Empirical Strategy . 14 1.5 Estimates of the Effect of the Reform on Economic Growth . 18 1.5.1 DID Comparing Incorporated Counties to Applied-but-failed Coun- ties......................................... 18 1.5.2 DID Using Variation in the Timing of Incorporation . 19 1.5.3 Robustness . 19 1.6 Mechanism . 20 1.7 Conclusion . 24 1.8 Figures and Tables . 27 2.0 Responsibility-Shifting through Delegation: Evidence from China’s One- Child Policy .......................................... 48 2.1 Introduction . 48 2.2 Background of the One-Child Policy . 53 2.3Data............................................ 57 2.3.1 The Measurement of Trust . 57 2.3.2 The Individual-Level OCP Exposure . 57 2.4 Empirical Strategy . 60 2.4.1 Identification Strategy . 60 vi 2.4.2 Empirical Specification . 62 2.5 Results . 63 2.5.1 The Effect of OCP Exposure between 1991 and 2015 on Trust . 63 2.5.2 The Effect of OCP Exposure in the 1980s on Trust . 64 2.5.3 Mechanism . 66 2.5.4 Robustness Checks . 66 2.6 Discussions . 67 2.6.1 Dare Not To Report Mistrust . 68 2.6.2 Trust in Central Government . 68 2.6.3 Better Performance in the Second Phase . 70 2.7 Conclusion . 70 2.8 Tables . 73 3.0 Correspondence Bias ................................... 82 3.1 Introduction . 82 3.2 Model . 88 3.3 Design . 91 3.3.1 First Stage . 92 3.3.2 Second Stage . 92 3.3.3 Third Stage . 93 3.3.4 Three Confounders . 95 3.3.5 Treatments . 96 3.3.6 Predictions . 97 3.4 Results . 99 3.5 Conclusion . 104 3.6 Figures . 106 3.7 Tables . 111 4.0 Appendices .......................................... 115 4.1 Appendix for Chapter 1 . 115 4.2 Appendix for Chapter 2 . 120 4.2.1 Fertility Penalty Data . 120 vii 4.2.2 The One-tailed T Test for Sex Ratios . 122 5.0 References . 133 viii List of Tables 1.1 Summary Statistics (Baseline Year) . 40 1.2 Estimated Effects of the Reform on Economic Growth . 41 1.3 Estimated Effects of the Reform on Economic Growth: Use Time Variation . 42 1.4 Overall Effect of the Reform on Prefectures’s Economic Growth . 43 1.5 Mechanism: Geographical Concentration . 44 1.6 Mechanism: Inter-sector Reallocation . 45 1.7 Mechanism: Firms’ Entry . 46 1.8 Mechanism: Firms’ Exit . 47 2.1 Summary Statistics . 73 2.2 Fertility Patterns in China . 74 2.3 Factors that Predict Gender of the First Child . 75 2.4 Estimates of OCP Exposure on Trust in Phase II (1991-2010) . 76 2.5 Estimates of OCP Exposure on Trust in Phase I (1979-1985) . 77 2.6 Heterogeneous Effect of OCP Exposure on Trust in Phase II . 78 2.7 Heterogeneous Effect of OCP Exposure on Trust in Phase I . 79 2.8 Estimates of OCP Exposure on Trust in Central Government . 80 2.9 Correlation between Fertility Penalty and Government Performance . 81 3.1 The Benign and Malign Games . 111 3.2 The Multiple Price List . 112 3.3 Benign Premium across Treatments . 112 3.4 Summary Statistics . 113 3.5 Benign Premiums in Treatment 2 . 114 4.1 Factors that Predict Timing of Incorporations . 117 4.2 Estimated Effects of the Reform on Economic Growth: Approach I (Without Sample of Direct-administered Municipalities of China) . 118 ix 4.3 Estimated Effects of the Reform on Economic Growth: Approach II (Without Sample of Direct-administered Municipalities of China) . 119 4.4 Sex Ratio at First Birth (Males/Females) in Urban China in 2000 . 123 4.5 Estimates of OCP Exposure on Trust in Phase II (1991-2010): Excluding High Sex Ratio Provinces . 124 4.6 Estimates of OCP Exposure on Trust in Phase II . 125 4.7 Estimates of OCP Exposure on Trust in Phase I . 126 4.8 Estimates of OCP Exposure on Trust in Phase II . 127 4.9 Estimates of OCP Exposure on Trust in Phase II . 128 4.10 Estimates of OCP Exposure on Trust in Phase I . 129 4.11 Estimates of OCP Exposure on Trust in Phase I . 130 4.12 Distribution of Responses: Trust in Local Governments . 131 4.13 Correlation between Fertility Penalty and Family-planning Rate . 132 x List of Figures 1.1 Government Structure in China . 27 1.2 Geographical Distribution of Treated Counties in Year 1998 . 28 1.3 Geographical Distribution of Treated Counties by Year 2004 . 29 1.4 Geographical Distribution of treated counties by Year 2013 . 30 1.5 Geographical Distribution of Treated and Control Counties . 31 1.6 The Impact of Market Integration: A Case Study of Hangzhou Prefecture . 32 1.7 The Impact of Market Integration: A Case Study of Tangshan Prefecture . 33 1.8 The Impact of Market Integration: A Case Study of Hengshui Prefecture . 34 1.9 The Impact of Market Integration on Economic Development (Approach I) . 35 1.10 The Impact of Market Integration on Economic Development (Approach II) . 36 1.11 The Overall Impact of Market Integration on Economic Development . ..