Title: "Was the World’s Trouble China’s Opportunity?" The Effects of World War I on Chinese Textile Industry

Speaker: Cong Liu, Shanghai University of Finance and Economics

Time: November 23th, 2018 13:30–15:00

Venue: Conference Room 106B, Zhonghui Building (IESR, JNU College of Economics)

About the speaker:

Cong Liu is an Assistant Professor of Economics at Shanghai University of Finance and Economics. She received PhD degree in Economics from the University of Arizona in 2016. Soon afterwards, Cong Liu joined SHUFE. Her research explores the causes and consequences of conflicts in Chinese history.

Abstract:

Import substitution is a commonly adopted policy, yet the evidence on its results is mixed. This paper uses unexpected trade disturbances due to World War I to study how a temporary reduction of imports influenced the development of Chinese cotton yarn industry. During the war, Chinese import quantity of cotton yarn decreased by half while the price doubled. Narrative evidence suggests that the yarn firms took this opportunity to earn additional profits and increase investments, but aggregated studies show that the postwar years experienced greater capital formation. I combine newly constructed information on cotton yarn firms, access to trade, and local characteristics from multiple sources to construct a county-level panel dataset from 1907 to 1925 and quantitatively examine the impact of this trade shock on firm entry and investments. The results find a significant and positive impact on the cotton yarn industry, while the effect decreased as counties located further from ports. In addition, I examine the heterogeneous effects associated with various local institutions, and find that assess to finance was essential for firm entry. In other worlds, contemporary import substitution strategy brings potential gains for domestic industrial development, but supportive institutions are necessary for the benefits.