Date of Award

Spring 5-15-2016

Author's School

Graduate School of Arts and Sciences

Author's Department


Degree Name

Doctor of Philosophy (PhD)

Degree Type



Chapter 1: Trade credit in production chains In an economy where production takes place in multiple stages and is subject to financial frictions, how firms finance intermediate inputs matters for aggregate outcomes. This paper focuses on trade credit the lending and borrowing of input goods between firms in a production chain and quantifies its aggregate impact. Motivated by empirical evidence, our model shows how trade credit alleviates financial frictions through a process of credit redistribution and creation, thus leading to a higher output level in the steady state. However, the flow of trade credit is prone to disruptions when financial crises hit the economy. The decline in economic activities following crises is in turn amplified by disruptions in trade credit. The model simulation suggests that the drop in trade credit during the Great Recession can account for almost one-fourth of the observed decline in output.

Chapter 2: Financial development beyond the formal financial market. This paper argues that to understand the quantitative importance of finance in economic development, it is important to look beyond the formal financial market. We document that informal financing is more accessible in countries with a highly developed formal financial market. The volume of informal financing, as well as the substitutability of informal financing for formal financing, are both positively correlated with the development of the formal financial market. We build a quantitative model in which a fundamental contract enforcement problem delivers the documented empirical patterns. The model is then disciplined to match aggregate and distributional moments of bank credit and trade credit an important informal financial institution of the U.S. and Chinese manufacturing firms, respectively. Our quantitative analysis suggests that by focusing on bank credit only, we understate the importance of finance in explaining the income differences between these two countries.

Chapter 3: Economic reforms and industrial policy in a panel of Chinese cities We study the effect of place-based industrial policy on economic development, focusing on the establishment of Special Economic Zones (SEZ) in China. We use data from a panel of Chinese (prefecture-level) cities from 1988 to 2010. Our difference-in-difference estimation exploits the variation in the establishment of SEZ across time and space. We find that the establishment of a state-level SEZ is associated with an increase in the level of GDP of about 20%. This finding is confirmed with alternative specifications and in a sub-sample of inland provinces, where the selection of cities to host the zones was based on administrative criteria. The main channel is a positive effect on physical capital accumulation, although SEZ also have a positive effect on total factor productivity and human capital investments. We also investigate whether there are spillover effects of SEZ on neighboring regions or cities further away. We find positive and often significant spillover effects.


English (en)

Chair and Committee

B. Ravikumar

Committee Members

Gaetano Antinolfi, Costas Azariadis, Yongseok Shin, Stephen D. Williamson,


Permanent URL:

Included in

Economics Commons