This paper studies the evolution of wealth inequality during China’s rapid economic growth since its market-oriented reforms in the early 1990s. We first document the evolution and composition of China’s wealth distribution and summarize stylized facts on aspects of the growth and reform process that are key to understanding wealth accumulation. Then we develop a heterogeneous-agent dynamic general equilibrium model that incorporates two sectors, the rural agricultural sector and the urban manufacturing sector, with endogenous migration, occupation, and durable consumption (housing) choices subject to frictions. In particular, the persistent financial market friction that entrepreneurs face plays a key role, as it ensures that the wealth brought by rapid capital accumulation is accrued predominantly to entrepreneurs.Our quantitative exercise decomposes the rising wealth inequality in China into different contributing factors.

We study the labor markets in China and the United States, the two largest economies in the world, by examining the evolution of their cross-sectional age-earnings profiles during the past thirty years. We find that, first, the peak age in the cross-sectional age earnings profiles, which we refer to as the “golden age,” stayed almost constant at around 45-50 in the U.S., but decreased sharply from 55 to around 35 in China; second, the age-specific earnings grew drastically in China, but stayed almost stagnant in the U.S.; third, the cross-sectional and life-cycle age-earnings profiles were remarkably similar in the U.S., but differed substantially in China. We propose and empirically implement a decomposition framework to infer from the repeated cross-sectional earnings data the experience effect (i.e., human capital accumulation over the life cycle), the cohort effect (i.e., inter-cohort human capital growth), and the time effect (i.e., changes in the human capital rental prices over time), under an identifying assumption that the growth of the experience effect stops at the end of one’s working career. The decomposition suggests that China has experienced a much larger inter-cohort productivity growth and higher increase in the rental price to human capital, but lower returns to experience, compared to the U.S. We also use the inferred components to revisit several important and classical applications in macroeconomics and labor economics, including growth accounting and the estimation of TFP growth, and the college wage premium and skill-biased technical change.

We develop a heterogeneous-agent model with local spatial markets to study the relationships among bank expansion, growth, and inequality. In the model, households choose their occupations, consumption, and holdings of loans and portfolio assets that vary by liquidity. Banks choose the locations of new branches, which affect the financial frictions facing households across regions. We calibrate the model using a geographic information system to evaluate the rapid bank expansion in Thailand between 1986-1996. The model quantifies the sources of growth and inequality over time and a cross space and the potential role of digital banking in substantially reducing regional heterogeneity.

In the dollar-denominated corporate bond market, 42% of bonds with an amount outstanding of USD 5.9 Trillion are issued by non-US firms. Despite the increasing importance of cross-border financing, foreign issuers are paying an extra premium of 23 bps, compared with their US counterparts. A similar foreign discount exists in the euro-denominated corporate bond and dollar-denominated sovereign bond market. Contrary to the common view, the standard risk and risk aversion cannot explain the discount. I propose a theoretical explanation based on uncertainty aversion. The model can generate the uncertainty effect in the cross-section and the volatility effect in the time series, both are supported by the data. Taking Covid-19 as an event study, I further document a foreign squeeze effect by showing that foreign dollar bonds suffer higher selling pressure relative to US dollar bonds during market turmoil. Such foreign discount (USA effect) dominates the dollar safety premium (USD effect). My results highlight the foreign discount and foreign squeeze effects in the international cross-border investment and financing.

We develop measures for technology decoupling and dependence between the U.S. and China based on combined patent data. The first two decades of the century witnessed a steady increase in technology integration (or less decoupling), but China’s dependence on the U.S. increased (decreased) during the first (second) decade. Decoupling in a technology field predicts China’s growing dependence on U.S. technology, which, in turn, predicts less decoupling further down the road. Decoupling is associated with more patent outputs in China, but lower firm productivity and valuation. China’s innovation-oriented industrial policies trade o↵ the inherent conflict between indigenous innovation and firm competitiveness.

Predicted TFP gains under Hsieh and Klenow (2009)’s framework are sensitive to demand elasticities and returns to scale, but simultaneously estimating them is difficult. We solve this problem by developing a framework allowing for an arbitrary distribution of firm-level markups and use microdata to estimate industry-specific production elasticities, within-industry type-specific demand elasticities when types are not observed, and firm-specific distortions. We apply our model to 2005 Chinese firm-level data and find that the predicted Total Factor Productivity (TFP) gains are 44% which is half of the previous findings. While the variation in markups does not affect predicted TFP gains, it lowers the predicted increase in labor income share by one-third, suggesting lower gains to average workers due to heterogeneous markups.

We build a unified framework to quantitatively examine population aging and credit market frictions in contributing to Chinese economic growth between 1977 and 2014. We find that demographic changes together with endogenous human capital accumulation account for a large part of the rise in per capita output growth, especially after 2007, as well as some of the rise in savings. Credit policy changes initially alleviate the capital misallocation between private and public firms and lead to significant increases in both savings and output growth. Later, they distort capital allocation. While contributing to further increase in savings, the distortion slows down economic growth. Among factors that we consider, increased life expectancy and financial development in the form of reduced intermediation cost are the most important in driving the dynamics of savings and growth.

We study how service trade affects structural transformation and regional patterns of specialization. Using unique Canadian trade data, we document that i) interprovincial and international trade of services have increased between 1992-2017; ii) inter-provincial trade is larger in services compared to goods; iii) structural transformation occurs from goods to tradable services, especially in tradable service-intensive provinces; and iv) there is significant regional specialization in producing goods and services across provinces. Using a spatial model of structural transformation and trade, we quantify the effects of service trade, domestic and international, on the share of the tradable-service sector and regional specialization. Our results indicate that domestic service trade has significantly contributed to the regional specialization. On the other hand, we find that, international service trade is more responsible for the increase of the tradable service share than domestic service trade in the aggregate Canadian economy.

This paper studies how a potential policy change that raises women’s social security eligibility age from 50 to 60 would affect women’s employment, human capital, and earnings in China. I develop a dynamic model of female labor supply, featuring voluntary retirement; occupational choice; human capital accumulation contingent on occupation, age, and employment status; and child care using time inputs from parents, grandparents, and formal child care from the market. I estimate the model parameters by matching moments on employment, wages, and the time allocation of child care from micro data in China. The policy counterfactual raising women’s social security eligibility age yields two main findings. First, the policy change leads to only a moderate increase in aggregate labor supply because it affects the employment of old and young women in opposite directions. The reduction in social security insurance encourages women above the age of 50 to supply more labor. Yet low-skilled young women with children reduce their labor supply in response to the children’s grandmothers working more and providing less child care. Second, since human capital accumulation is faster on the earlier career path rather than later, the reduction in early career employment leads to persistent losses in human capital and earnings for low-skilled women.

In the context of technological competition and international trade, a country may attempt to influence a rival’s innovation efforts and use trade and innovation policies to gain at another’s expense. In a multi-country, multi-sector, dynamic model with endogenous technology accumulation through R&D innovation, we show that there is an additional incentive (beyond conventional terms of trade considerations) for Home to shift its demand for particular foreign goods and in turn affect foreign’s innovation efforts. We derive explicit expressions for optimal policies under an efficient baseline case, and general results for a wide range of specifications. In a dynamic setting, Ramsey optimal policies do not distort domestic R&D efforts if a country can commit to a schedule of trade policies, but time consistent policies employ both innovation and trade policies to implement the optimal foreign allocation, viewed from the Home country’s perspective.