Research

UNDER REVIEW

  • Qing Deng. “FDI and Race to the Enforcement Bottom: A Firm-Level Perspective.”
    Recent scholarship on the relationship between globalization and regulatory governance in developing countries counters the concern raised by the race to the bottom hypothesis, expressing optimism about the upward harmonization of regulatory standards through voluntary compliance. This article brings attention back to the statutory regulation and tests whether governments discriminatorily enforce environmental laws and regulations to retain FDI. Using original firm-level enforcement data in the Jiangsu province of China, 2012-2014, this article examines the effect of foreign ownership on the enforcement of three regulatory instruments: economic incentives, command-and-control, and naming-and-shaming. After controlling for firms’ environmental performance, I find that firms with foreign ownership 1) pay fewer pollution fees, 2) are less likely to be punished, and 3) are more likely to obtain the highest score in the environmental credit rating system than domestic firms. My findings suggest caution against being overly optimistic about the upward harmonization.
  • Boliang Zhu and Qing Deng. “Monopoly Rents, Institutions, and Bribery.” [PDF]
    Why do some firms pay more bribes than others? We extend the literature by examining the role of one crucial, but overlooked industry characteristic — fixed asset intensity — in shaping firms’ bribe payments. High fixed asset intensity creates natural entry barriers, thereby leading to market concentration and opportunities for monopoly rent extraction. High rents, in turn, increase the value of government officials’ “control rights” and thus their incentive to engage in predatory behavior. Firms in fixed-asset intensive industries therefore have strong incentives to pay bribes in exchange for de facto property rights. We further posit that strong legal institutions weaken this quid pro quo by providing security for property rights and increasing the risk for government officials’ behaving corruptly. We find empirical support for our arguments based on data from a large firm survey in China. Our findings have important implications for governance and industrial regulations in developing countries.

WORKING PAPER

  • Xun Cao, Qing Deng, Xiaojun Li, and Zijie Shao. “The Politics of Environmental Regulatory Actions in China: Does Fixed Asset Intensity Affect Pollution Levies, Punitive Actions, and Firm Environmental Ratings?”
    This paper studies how local governments in China enforce environmental regulations at the firm level. The theoretical focus is on the role of fixed asset intensity. On the one hand, high fixed asset intensity makes a firm less mobile. A less mobile firm cannot present a credible exit-threat if its local government targets the firm with stringent enforcement. On the other hand, high fixed asset intensity creates natural barriers to market entry and opportunities for monopoly rent extraction, therefore empowers existing firms to lobby and pressure for a favorite regulatory treatment. Our analysis of key monitored polluting firms in the Jiangsu province for 2012-2014 shows that all else equal, a higher level of fixed asset intensity is associated with a better firm environmental rating by the government, but at the same time a higher amount of pollution levies and to a lesser extent, a higher chance of receiving a government punitive action (e.g., fines, suspension of production, and rectification). It seems that facing severe pollution and pressures from the central government to clean up the environment, local governments are more likely to target firms with high fixed asset intensity, knowing that they are much less likely to relocate. However, because such firms also enjoy strong market power, local governments compensate them by offering better environmental ratings, which not only serve as good publicities, but also are linked to preferential government treatments, for instance, in obtaining loans from state-owned banks.

REPORT

  • Energy Foundation, China Sustainable Energy Program. 2012. “Compensation Mechanisms for Ancillary Services for Grid Integration of Large-scale Renewables” (in Chinese). [DOC]
  • Energy Foundation, China Sustainable Energy Program. 2012. “Transaction and Pricing Mechanisms for Cross-Regional (Province) Delivery of Large-scale Renewables” (in Chinese). [DOC]