Essays on China’s Economic Development : Innovation, Public Debt and Social Connections

Abstract: The Innovation Cost of Short Political Horizons: Evidence from Local Leaders’ Promotion in ChinaI digitize the career histories of Chinese city leaders and link them to economic policies and innovation outcomes. I exploit political connections formed through previous work ties to generate variation in leaders’ promotion expectations. I find that when leaders are connected, they can expect an earlier promotion. Such expectations lead them to pursue a fast-over-slow strategy for growth: higher spending on infrastructure, lower spending on science and technology, and a lower effort in promoting innovation. As a result, the local economy has higher short-term growth but lower future patenting and long-term growth.Public Debt Financing and Local Credit Allocation: Evidence from ChinaWe exploit a regulatory change in China that shifts its local governments’ debt financing from bank loans to bond issuance as a quasi-experiment to study the effect of public debt financing on local firms’ capital structure.  We first find a crowding-out effect between corporate borrowing and public debt when local governments heavily rely on bank debt. Following the regulatory shock that local governments switch to another financing alternative – bonds, we observe that firms are crowding-in in cities where public bank debt is high, and this result is mainly driven by firms with higher performance. Lastly, we find that the switch in public debt financing leads firms with sufficient cash flow to increase investment.Social Connections and the Spatial Spread of COVID-19 in ChinaI study how well the spread of COVID-19 across Chinese cities can be predicted by social connections and travel flows across cities. I analyze a panel of 300 cities for the period from January 23rd to March 23rd, 2020. I construct a measure, SocialMediaConnection, of social connections using aggregated social media communications across cities from Weibo, one of China’s largest social media platforms. I find that SocialMediaConnection outperforms travel flows in predicting the arrival time of COVID-19: cities with higher SocialMediaConnection to Wuhan, the initial outbreak center, have their first COVID-19 cases earlier. I also find that both social media and travel connections have dual effects on local transmission, because they correlate with interpersonal contacts, but also capture communication about infection risks. The second effect is particularly pronounced for SocialMediaConnection. Consistent with this, I find that social distancing increases in cities with strong SocialMediaConnection to cities with high infection rates.