Publications of Daniel Yi Xu
%% Journal Articles
@article{fds368432,
Author = {Edmond, C and Midrigan, V and Xu, DY},
Title = {How Costly Are Markups?},
Journal = {Journal of Political Economy},
Volume = {131},
Number = {7},
Pages = {1619-1675},
Publisher = {University of Chicago Press},
Year = {2023},
Month = {July},
Abstract = {We study the welfare costs of markups in a dynamic model
with hetero- geneous firms and endogenous markups. We
provide aggregation re- sults summarizing the macro
implications of micro-level markup het- erogeneity. We
calibrate our model to US Census of Manufactures data and
find that the costs of markups can be large. We decompose
the costs into three channels: an aggregate markup that acts
like a uni- form output tax, misallocation of factors of
production, and ineffi- cient entry. We find that the
aggregate-markup and misallocation channels account for most
of the costs of markups and that the entry channel is much
less important.},
Doi = {10.1086/722986},
Key = {fds368432}
}
@article{fds365488,
Author = {Chen, Z and Jiang, X and Liu, Z and Suárez Serrato and JC and Xu,
DY},
Title = {Tax Policy and Lumpy Investment Behaviour: Evidence from
China’s VAT Reform},
Journal = {Review of Economic Studies},
Volume = {90},
Number = {2},
Pages = {634-674},
Publisher = {Oxford University Press (OUP)},
Year = {2023},
Month = {March},
Abstract = {We incorporate the lumpy nature of firm-level investment
into the study of how tax policy affects investment
behaviour. We show that tax policies can directly impact the
lumpiness of investment. Extensive-margin responses to tax
policy are key to understanding the effects of different tax
reforms and to designing effective stimulus policies. We
illustrate these results by studying China’s 2009 VAT
reform, which lowered the tax cost of investment and reduced
partial irreversibility—the price gap between new and used
capital. Using comprehensive tax survey data and a
difference-in-differences design, we estimate a 36% relative
investment increase that is driven by investment spikes.
Using a dynamic investment model that fits the reduced-form
effects of the reform, we show that policies that directly
reduce the likelihood of firm inaction are more effective at
stimulating investment.},
Doi = {10.1093/restud/rdac027},
Key = {fds365488}
}
@article{fds368433,
Author = {Demir, B and Fieler, AC and Yi Xu and D and Yang, KK},
Title = {O-Ring Production Networks},
Year = {2021},
Month = {February},
Key = {fds368433}
}
@article{fds363444,
Author = {Chen, Z and He, Y and Liu, Z and Xu, DY and Serrato,
JCS},
Title = {The structure of business taxation in China},
Volume = {35},
Number = {1},
Pages = {131-177},
Year = {2021},
Month = {January},
Abstract = {This paper documents facts about the structure of business
taxation in China using administrative tax data from 2007 to
2011 from the State Taxation Administration.We first
document the importance of different business taxes across
industries. Although corporate income taxes play an
important role for manufacturing firms, these firms also
remit a large share of their tax payments through the
value-added tax system, through the excise tax system, and
through payroll taxes. Gross receipts taxes play an
important role for firms in other industries, leading to
spillovers that may affect the overall economy. Second, we
evaluate whether the structure of China’s tax revenue
matches its stage of development. A crosscountry comparison
of sources of government revenue shows that China collects a
high share of tax revenue fromtaxes on goods and services
and a high share of income tax on corporations. Finally, we
study whether firmlevel differences in effective tax rates
can be an important source of allocative
inefficiencies.Decomposing the variation in effective tax
rates across firms, we find that government policies,
including loss carry-forward provisions and preferential
policies for regional, foreign, small, and high-tech firms,
have significant explanatory power. Nonetheless, although
effective tax rates vary along a number of dimensions, tax
policy does not explain the large dispersion in the returns
to factors of production across firms.},
Doi = {10.1086/713495},
Key = {fds363444}
}
@article{fds346772,
Author = {Hu, MM and Yang, S and Xu, DY},
Title = {Understanding the social learning effect in contagious
switching behavior},
Journal = {Management Science},
Volume = {65},
Number = {10},
Pages = {4771-4794},
Publisher = {Institute for Operations Research and the Management
Sciences (INFORMS)},
Year = {2019},
Month = {October},
Abstract = {We study the contagious switching behavior related to a
consumer’s choice of wireless carriers, that is, that a
consumer is more likely to switch wireless carriers if more
of their contacts from the same carrier have switched.
Contagious switching (or a positive network effect) can be
driven by information-based social learning, as well as
other mechanisms related to network size. Although previous
marketing literature has documented the social-learning
effect, most of the applications studied involve products in
which consumers usually do not enjoy any direct benefits
from a large network other than from information-based
social learning. We explore the importance of the
social-learning effect relative to other mechanisms that may
also lead to the network effect. We propose a dynamic
structural model with interpersonal interactions. To model
the social-learning effect, a consumer uses feedback from
his or her contacts who have switched from a focal carrier
to update his or her quality expectations of alternative
carriers. Our model further accounts for two unique aspects
of consumer strategic learning: (i) the individual’s
perception on the signal of alternative carriers from
contacts who switch is systematically different according to
whether the signal comes from a loyal contact; and (ii) that
the perceived noisiness of the signal on alternative
carriers from a contact who has switched depends on the
strength of the relationship between the individual and the
contact. The remaining network effect not captured through
social learning is modeled as a function of the size of the
network. We solve the model with a two-step dynamic
programming algorithm, with the assumption that a consumer
is forward-looking and decides whether to stay with the same
service carrier in each period by maximizing the total
utility received from that day onward. We apply the proposed
model to the data set of a mobile network operator in a
European country. We find that churning/switching behavior
is contagious in the network context and that one-third of
general network effects can be attributed to social
learning. We also detect strategic learning by consumers
from their contacts in two ways: the experience signal on
alternative carriers from a more loyal contact who has
switched from the focal carrier is perceived to be more
positive than that from a less loyal contact; and the
social-learning effect is stronger from an individual’s
closest contacts. The simulation analysis demonstrates the
value of our model in helping a company prioritize its
customer relationship management effort.},
Doi = {10.1287/mnsc.2018.3173},
Key = {fds346772}
}
@article{fds338620,
Author = {Xu, DY and Cabral, L and Wang, Z},
Title = {Competitors, Complementors, and Parents: Explaining Regional
Agglomeration in the U.S. Auto Industry},
Pages = {1-29},
Publisher = {Elsevier BV},
Year = {2018},
Month = {October},
Abstract = {Taking the early U.S. automobile industry as an example, we
evaluate four competing hypotheses on regional industry
agglomeration: intra-industry local externalities,
inter-industry local externalities, employee spinouts, and
location fixed effects. Our findings suggest that in the
automobile case, inter-industry local externalities
(particularly from the carriage and wagon industry) and
employee spinouts (particularly due to the high spinout rate
in Detroit) play important roles. The presence of other
firms in the same industry has a negligible or negative
effect. Finally, local inputs account for some agglomeration
in the short run, but the effects are much more profound in
the long run.},
Doi = {10.1016/j.red.2018.01.006},
Key = {fds338620}
}
@article{fds339234,
Author = {Roberts, MJ and Xu, DY and Fan, X and Zhang, S},
Title = {The role of firm factors in demand, cost, and export market
selection for chinese footwear producers},
Journal = {Review of Economic Studies},
Volume = {85},
Number = {4},
Pages = {2429-2461},
Publisher = {Oxford University Press (OUP)},
Year = {2018},
Month = {October},
Abstract = {In this article, we use micro data on both trade and
production for a sample of large Chinese manufacturing firms
in the footwear industry from 2002 to 2006 to estimate an
empirical model of export demand, pricing, and market
participation by destination market. We use the model to
construct indexes of firm-level demand, marginal cost, and
fixed cost. The empirical results indicate substantial firm
heterogeneity in all three dimension with demand being the
most dispersed. The firm-specific demand and marginal cost
components account for over 30% of market share variation,
40% of sales variation, and over 50% of price variation
among exporters. The fixed cost index is the primary factor
explaining differences in the pattern of destination markets
across firms. The estimates are used to analyse the supply
reallocation following the removal of the quota on Chinese
footwear exports to the EU. This led to a rapid
restructuring of export supply sources on both the intensive
and extensive margins in favour of firms with high demand
and low fixed costs indexes, with marginal cost differences
not being important.},
Doi = {10.1093/restud/rdx066},
Key = {fds339234}
}
@article{fds343255,
Author = {Suarez Serrato and JC and Chen, Z and Liu, Z and Xu,
DY},
Title = {Notching R&D Investment with Corporate Income Tax Cuts in
China},
Year = {2018},
Month = {June},
Abstract = {We analyze the effects of a large fiscal incentive for R&D
investment in China that awards a lower average corporate
income tax rate to qualifying firms. The sharp incentives of
the program generate notches, or jumps, in firm values, and
vary over time and across firm characteristics. We exploit a
novel link between survey and administrative tax data of
Chinese firms to estimate investment responses, the
potential for evasion, as well as effects on productivity
and tax payments. We find large responses of reported R&D
using a cross-sectional “bunching” estimators that is
new in the R&D literature. We also find evidence that firms
relabel administrative expenses as R&D to qualify for the
program. We estimate an intent-to-treat effect of the policy
on R&D investment of 18.8%, and find that 45% of this
response is due to evasion. These effects imply
user-cost-elasticities of 2 for the reported response, and
1.14 for the real response. We utilize the panel structure
of the data to estimate the effect of the program on firm
productivity, and find an increase of 1.6% for targeted
firms. These estimates are crucial ingredients for designing
policies that trade-off corporate tax revenue with future
productivity growth.},
Key = {fds343255}
}
@article{fds331945,
Author = {Fieler, AC and Eslava, M and Xu, DY},
Title = {Trade, quality upgrading, and input linkages: Theory and
evidence from Colombia},
Journal = {American Economic Review},
Volume = {108},
Number = {1},
Pages = {109-146},
Publisher = {American Economic Association},
Year = {2018},
Month = {January},
Abstract = {A quantitative model brings together theories linking
international trade to quality, technology, and demand for
skills. Standard effects of trade on importers and exporters
are magnifed through domestic input linkages. We estimate
the model with data from Colombian manufacturing frms before
the 1991 trade liberalization. A counterfactual trade
liberalization is broadly consistent with postliberalization
data. It increases skill intensity from 12 to 16 percent,
while decreasing sales. Imported inputs, estimated to be of
higher quality, and domestic input linkages are
quantitatively important. Economies of scale, export
expansion, and reallocation of production are small and
cannot explain post-liberalization data.},
Doi = {10.1257/aer.20150796},
Key = {fds331945}
}
@article{fds331308,
Author = {Xu, DY},
Title = {Comments on “Innovation and product reallocation in the
great recession”},
Journal = {Journal of Monetary Economics},
Volume = {93},
Pages = {21-23},
Publisher = {Elsevier BV},
Year = {2018},
Month = {January},
Doi = {10.1016/j.jmoneco.2017.10.002},
Key = {fds331308}
}
@article{fds368434,
Author = {Tybout, J and Jinkins, D and Xu, DY and Eaton, J},
Title = {Two-sided Search in International Markets},
Year = {2016},
Abstract = {We develop a dynamic model of the many-to-many matching
processes through which international business relationships
are formed. Our formulation characterizes exporters' and
importers' search efforts as functions of their type, their
current portfolio of business partners, and the market
conditions they face. After calibrating our model to customs
records on Colombian retailers, we use it to study the
steady state and transitory effects of China's emergence as
a major supplier of consumer goods. In doing so we focus on
the induced changes in matching patterns, the associated
reallocation of rents across businesses, and the net effects
on consumer welfare.},
Key = {fds368434}
}
@article{fds290828,
Author = {Edmond, C and Midrigan, V and Xu, DY},
Title = {Competition, markups, and the gains from international
trade},
Journal = {American Economic Review},
Volume = {105},
Number = {10},
Pages = {3183-3221},
Publisher = {American Economic Association},
Year = {2015},
Month = {October},
ISSN = {0002-8282},
Abstract = {We study the procompetitive gains from international trade
in a quantitative model with endogenously variable markups.
We find that trade can significantly reduce markup
distortions if two conditions are satisfied: (i ) there is
extensive misallocation, and (ii ) opening to trade exposes
hitherto dominant producers to greater competitive pressure.
We measure the extent to which these two conditions are
satisfied in Taiwanese producer-level data. Versions of our
model consistent with the Taiwanese data predict that
opening up to trade strongly increases competition and
reduces markup distortions by up to one-half, thus
significantly reducing productivity losses due to
misallocation.},
Doi = {10.1257/aer.20120549},
Key = {fds290828}
}
@article{fds239254,
Author = {Eslava, M and Fieler, AC and Xu, DY},
Title = {(Indirect) input linkages},
Journal = {American Economic Review},
Volume = {105},
Number = {5},
Pages = {662-666},
Publisher = {American Economic Association},
Year = {2015},
Month = {May},
ISSN = {0002-8282},
Doi = {10.1257/aer.p20151122},
Key = {fds239254}
}
@article{fds239255,
Author = {Midrigan, V and Xu, DY},
Title = {Finance and misallocation: Evidence from plant-level
data},
Journal = {American Economic Review},
Volume = {104},
Number = {2},
Pages = {422-458},
Publisher = {American Economic Association},
Year = {2014},
Month = {February},
ISSN = {0002-8282},
Abstract = {We use producer-level data to evaluate the role of financial
frictions in determining total factor productivity (TFP). We
study a model of establishment dynamics in which financial
frictions reduce TFP through two channels. First, finance
frictions distort entry and technology adoption decisions.
Second, finance frictions generate dispersion in the returns
to capital across existing producers and thus productivity
losses from misallocation. Parameterizations of our model
consistent with the data imply fairly small losses from
misallocation, but potentially sizable losses from
inefficiently low levels of entry and technology adoption.
Copyright © 2014 by the American Economic
Association.},
Doi = {10.1257/aer.104.2.422},
Key = {fds239255}
}
@article{fds239256,
Author = {Dunne, T and Klimek, SD and Roberts, MJ and Xu, DY},
Title = {Entry, exit, and the determinants of market
structure},
Journal = {RAND Journal of Economics},
Volume = {44},
Number = {3},
Pages = {462-487},
Publisher = {WILEY},
Year = {2013},
Month = {September},
ISSN = {0741-6261},
Abstract = {This article estimates a dynamic, structural model of entry
and exit for two US service industries: dentists and
chiropractors. Entry costs faced by potential entrants,
fixed costs faced by incumbent producers, and the toughness
of short-run price competition are important determinants of
long-run firm values, firm turnover, and market structure.
In the dentist industry entry costs were subsidized in
geographic markets designated as Health Professional
Shortage Areas (HPSA) and the estimated mean entry cost is
11 percent lower in these markets. Using simulations, we
find that entry cost subsidies are less expensive per
additional firm than fixed cost subsidies. © 2013,
RAND.},
Doi = {10.1111/1756-2171.12027},
Key = {fds239256}
}
@article{fds328794,
Author = {Xu, DY and Roberts, MJ and Fan, X and Zhang, S},
Title = {The Role of Firm Factors in Demand, Cost, and Export Market
Selection for Chinese Footwear Producers},
Publisher = {National Bureau of Economic Research},
Year = {2012},
Month = {January},
Doi = {10.3386/w17725},
Key = {fds328794}
}
@article{fds239261,
Author = {Aw, BY and Roberts, MJ and Xu, DY},
Title = {R&D investment, exporting, and productivity
dynamics},
Journal = {American Economic Review},
Volume = {101},
Number = {4},
Pages = {1312-1344},
Publisher = {American Economic Association},
Year = {2011},
Month = {June},
ISSN = {0002-8282},
Abstract = {This paper estimates a dynamic structural model of a
producer's decision to invest in R&D and export, allowing
both choices to endogenously affect the future path of
productivity. Using plant-level data for the Taiwanese
electronics industry, both activities are found to have a
positive effect on the plant's future productivity. This in
turn drives more plants to self-select into both activities,
contributing to further productivity gains. Simulations of
an expansion of the export market are shown to increase both
exporting and R&D investment and generate a gradual
within-plant productivity improvement. © The Nobel
Foundation 2010.},
Doi = {10.1257/aer.101.4.1312},
Key = {fds239261}
}
@article{fds239260,
Author = {Lederman, D and Rodríguez-Clare, A and Xu, DY},
Title = {Entrepreneurship and the extensive margin in export growth:
A microeconomic accounting of Costa Rica's export growth
during 1997-2007},
Journal = {World Bank Economic Review},
Volume = {25},
Number = {3},
Pages = {543-561},
Publisher = {Oxford University Press (OUP)},
Year = {2011},
Month = {January},
ISSN = {0258-6770},
Abstract = {Successful exporting countries are often seen as successful
economies. This paper studies the role of new exporting
entrepreneurs-defined as firms that became exporters-in
determining export growth in a fast growing and export
oriented middleincome country i.e., Costa Rica during
1997-2007. It provides a detailed description of the
contribution of export entrepreneurs in the short and long
run, and comparing the observed patterns with an emerging
literature on the role of the "extensive" margin in
international trade. On a year-by-year basis, the rate of
firm turnover into and out of exporting is high, but exit
rates decline rapidly with age (i.e., the number of years
the firm has been exporting). On average, about 30 percent
of firms in each year tend to exit export activities, and a
similar percentage of firms enter. The exiting and entering
firms tend to be significantly smaller than incumbent firms
in terms of export value (e.g., entrants export about 30
percent less on average than incumbent firms). These
findings are consistent with existing evidence for other
middle income Latin American countries. However, in the long
run new product-firm combinations (i.e., product-firm
combinations not present in 1997) account for almost 60
percent of the value of exports in 2007. Surviving new
exporters actively adopted new products (for the firm, but
not necessarily new for the country) and abandoned weaker
existing products they start with, and their export growth
rates were very high during a period (1999-2005) when those
of incumbent exporting firms were actually negative. © The
Author 2011. Published by Oxford University Press on behalf
of the International Bank for Reconstruction and
Development/The World Bank. All rights reserved.},
Doi = {10.1093/wber/lhr031},
Key = {fds239260}
}
@article{fds239259,
Author = {Guner, N and Ventura, G and Xu, Y},
Title = {Macroeconomic implications of size-dependent
policies},
Journal = {Review of Economic Dynamics},
Volume = {11},
Number = {4},
Pages = {721-744},
Publisher = {Elsevier BV},
Year = {2008},
Month = {October},
ISSN = {1094-2025},
Abstract = {Government policies that impose restrictions on the size of
large establishments or firms, or promote small ones, are
widespread across countries. In this paper, we develop a
framework to systematically study policies of this class. We
study a simple growth model with an endogenous size
distribution of production units. We parameterize this model
to account for the size distribution of establishments and
for the large share of employment in large establishments.
Then, we ask: quantitatively, how costly are policies that
distort the size of production units? What is the impact of
these policies on productivity measures, the equilibrium
number of establishments and their size distribution? We
find that these effects are potentially large: policies that
reduce the average size of establishments by 20% lead to
reductions in output and output per establishment up to 8.1%
and 25.6% respectively, as well as large increases in the
number of establishments (23.5%). © 2008 Elsevier Inc. All
rights reserved.},
Doi = {10.1016/j.red.2008.01.005},
Key = {fds239259}
}
@article{fds239258,
Author = {Aw, BY and Roberts, MJ and Xu, DY},
Title = {R&D investments, exporting, and the evolution of firm
productivity},
Journal = {American Economic Review},
Volume = {98},
Number = {2},
Pages = {451-456},
Publisher = {American Economic Association},
Year = {2008},
Month = {May},
ISSN = {0002-8282},
Doi = {10.1257/aer.98.2.451},
Key = {fds239258}
}
@article{fds325963,
Author = {Xu, DY},
Title = {A Structural Empirical Model of R&D, Firm Heterogeneity, and
Industry Evolution},
Year = {2008},
Key = {fds325963}
}
@article{fds239257,
Author = {Guner, N and Ventura, G and Yi, X},
Title = {How costly are restrictions on size?},
Journal = {Japan and the World Economy},
Volume = {18},
Number = {3},
Pages = {302-320},
Publisher = {Elsevier BV},
Year = {2006},
Month = {August},
ISSN = {0922-1425},
Abstract = {We develop a simple framework to address government policies
that restrict the size of establishments in a particular
sector. The economy we study is a two-sector extension of
the span-of-control model of Lucas [Lucas, R.E., 1978. On
the size distribution of business firms. Bell Journal 9,
508-523]. In the model, production requires a managerial
input, and individuals sort themselves into managers and
workers. Since managers are heterogeneous in terms of their
ability, establishments of different sizes coexist in
equilibrium in each sector. We then study government
policies that aim to change the size distribution of
establishments in a given sector, such as Japan's Large
Scale Retail Location Law. How costly are these policies?
What is their impact on productivity, the number and size
distribution of establishments? We find that these effects
are potentially large. © 2005 Elsevier B.V. All rights
reserved.},
Doi = {10.1016/j.japwor.2004.11.002},
Key = {fds239257}
}