2011–12 Grants

This year, funding supported research on issues revolving in or around China, Indonesia, Malaysia, Singapore, Somalia and the United States. Following are the projects:

  • Sam Bazzi - "Credit Constraints and Investment in International Contract Migration: Theory and Evidence from Indonesia"
  • Jess Diamond and Benjamin Kay - "Insights into Efficiency of Housing Markets"
  • Jesse Driscoll and Nicolai Lidow - "The Price of Instability: Markets and State Capacity in Somalia"
  • Dimitar Gueorguiev - "Budget Democracy: Trials in China"
  • Kai Ostwald - "Public Policy and Ethnic Fractionalization in Singapore and Malaysia"
  • Weiyli Shi - "Risky Business: Governance of China's Outbound Investments
  • Junjie Zhang - "Fiscal Incentives and Infrastructure: The Case of Sewage Treatment in China"

Samuel Bazzi

PhD Candidate, UC San Diego Department of Economics

Title: "Credit Constraints and Investment in International Contract Migration: theory and evidence from Indonesia"

Summary:

Several million individuals from less-developed countries migrate abroad on temporary labor contracts each year. Many of these migrants come from rural areas where weather and commodity price volatility have large and diverse welfare consequences. As demand for foreign labor grows in rich countries and as sending-country governments strive towards more effective emigration policies, it is important to understand how financial and other barriers to migration determine who is able to access high return jobs abroad.

Samuel Bazzi’s research sought to address two questions:

  1. How do unexpected changes in household income affect the decision to undertake temporary contract migration
  2. What do these household responses tell us about the relative importance of different types of economic shocks in affecting migration flows from developing countries

The research findings offer robust new evidence on the extent to which financial barriers limit international migration flows from low-income settings. Samuel plans to graduate in 2013 and this project contributes to his dissertation, which provides novel insights on some classic questions in development economics.

Jess Diamond and Benjamin Kay

PhD Candidates, UC San Diego Department of Economics

Title: "Insights into Efficiency of Housing Markets"

Summary:

A central question in the economics of finance is “how much is an asset worth?” While most economists would agree on a common framework to answer this question, they have found it difficult to decide which specific models are correct. One problem is that research in this area has focused on securities markets. While securities would appear to be an obvious application for such research, they may not be the best area in which to decide the most appropriate models. A better area in which to search for the correct models to price assets may be the housing market. This is because housing is of greater importance to the wealth of households than stocks or bonds and housing markets are local rather than national, allowing a comparison of how strong or weak markets affect households differently.

Data for the housing market that can be used to answer such questions have now become available, overcoming a central problem to research in this area. Using this data, we will be able to investigate questions such as “how do changes in peoples’ attitudes towards risk affect the prices of houses?” or “how would house prices change if regulators forced home-buyers to put down a larger down payment?” It would also allow researchers to look backward and understand how people expected the value of their homes to change over time during the housing boom of the mid-2000s.

Diamond and Kay’s project sought to expand this area of research on the relatively unexplored housing market that has the potential to lead to important insights about the nature of not only the housing market, but also financial markets in general.

Building on research from Kay’s doctoral dissertation and using new housing market data that has become available only in recent years, they show that the most popular model in finance (the CAPM) is unable to explain housing prices. This implies that there are large and potentially dangerous pitfalls from applying popular models from finance in their current form to housing prices. Their next step will be to investigate why housing behaves so differently from stocks and bonds.

Jesse Driscoll and Nicolai Lidow

Jesse Driscoll, UC San Diego GPS

Nicolai Lidow, PhD Candidate, UC San Diego Department of Economics

Title: "The Price of Instability: Markets and State Capacity in Somalia"

Summary:

The humanitarian consequences of civil war extend far beyond the fighting and violence. By some estimates, acts of physical violence account for less than 10% of war-related deaths. Chronic malnutrition is an under-studied scourge of war. Currently more than $10 billion per year is spent on humanitarian aid to mitigate the effects of war-induced hunger and disease. However, relatively little is known about how insecurity, violence and the delivery of aid affect civilians’ access to food and other essentials.

Over the long run, the hope is that by comparing market conditions, we will be able to isolate the civilian welfare effects of episodic local violence, the identity of the faction controlling the territory and the quantity of international aid delivered to Somalia.

Despite ongoing conflict and recent famine, more than 80% of residents in Somalia’s capital of Mogadishu rely on local markets for food and essential goods, according to the first representative survey of the city in 25 years. By contrast, only 12% of the city’s population reported receiving food aid.

This project provided valuable data and Driscoll and Lidow are now analyzing data from the first representative survey of Mogadishu since the 1980s, which they conducted in March of this year. They hope this data will also assist policymakers in trying to understand how indirect foreign policy instruments can improve the lives of people affected by war.

Dimitar Gueorguiev

PhD Candidate, UC San Diego Department of Political Science

Title: "Budget Democracy: Trials in China"

Summary:

Anti-corruption efforts in China are a crucial component of the ruling regime’s claim to legitimacy; however, despite the publicity these efforts have received in the press and academic journals, there is still no systematic assessment of the different strategies being employed to fight corruption.

Gueorguiev’s research project examines the grassroots of anti-corruption policy and governance reform in China. The project sent a team of graduate students armed with cutting-edge survey research techniques to explore how bottom-up public oversight is changing the patterns of corruption during the next round of budget deliberations in several coastal townships. This sensitive issue requires carefully randomized policy treatments and assessments.

In short, a survey was conducted on randomly selected Chinese citizens who were given an opportunity to participate in the annual budget. Led by Gueroguiev, the team randomly surveyed non-participants so that there would be a control and treatment group. The findings are robust and compelling. Not only do treated participants express greater approval of the local government, they are also more willing to invest locally and consider higher-level township elections as more meaningful than lower level village elections. Perhaps a more interesting finding is that treated participants experienced a dramatic change in how they evaluated government. Whereas control group respondents identified economic performance as being the main governance characteristic they value, treated participants identified accountability as being most important.

Gueroguiev argues that this is a direct cause of being involved in what is now a transparent local budget and having rich information on how the money will be spent.

Kai Ostwald

PhD Candidate, UC San Diego Department of Political Science

Title: "Public Policy and Ethnic Fractionalization in Singapore and Malaysia"

Summary:

Conflict between ethnic groups can impose significant costs, both in terms of human lives and disrupted development. However, not every ethnically diverse population is stricken with conflict, and some, in fact, seem to gain strength from diversity. While we understand many of the factors that contribute to this difference of outcomes, there remain important unanswered questions.

This is particularly the case regarding the efficacy of domestic policies and programs implemented in order to reduce the likelihood of ethnic conflict. Ostwald’s project examined the effects of political mobilization and key domestic policies on economically and politically relevant aspects of individual level ethnic identity.

While there are many assumptions on the relationship between politics and ethnic identity, few have been empirically tested in a systematic manner. The project faced two fundamental requirements to make progress on key questions. The first involved isolating the effects of politics and policies from those of other influential factors. This is done by exploiting policy and demographic variations in selected areas of Singapore and Malaysia, as these countries share key similarities in terms of ethnic makeup, but vary considerably in terms of policy approaches. The second involved effectively measuring ethnic identity, which is inherently difficult by its multifaceted and context dependent nature.

The project employed multiple innovative measurement approaches; all designed to indirectly capture different elements of ethnic identity. These included running survey experiments and experimental games, as well as analyzing network structures using social networking data.

Weiyli Shi

PhD Candidate, UC San Diego Department of Political Science

Title: "Risky Business: Governance of China's Outbound Investments"

Summary:

Companies from emerging economies are increasingly investing overseas. China’s global quest for natural resources in particular has attracted a multitude of media attention. The investment decision and management processes, however, remain vaguely understood at best. This project was designed to shed light on how China’s global investors operate and understand them in the context of prevailing international practices.

Shi believes that this new research will contribute primarily to the international political economy literature. Much has been written on how the host countries’ governance influences FDI (Stasavage, 2002). The economics literature has also examined how characteristics of the firms (e.g. firm organization, productivity, global value chain) impact firms’ decisions to invest abroad (Helpman, 2006). Less is known about how the political systems of the home countries influence the firms’ investment behaviors. China’s outbound investments, a significant portion of which is carried out by state-owned enterprises, may well defy the existing theoretical models on FDI.

Shi’s research seeks to provide a more nuanced understanding of how domestic politics influence firms’ global strategies. Using cross-national data, she has tentatively identified the empirical regularity that investors from autocratic countries such as China invest in riskier destinations. As her dissertation proceeds, Shi hopes to differentiate among different types of Chinese firms and identify the causal mechanisms behind Chinese investors’ seemingly greater appetite for risks. She is currently working with scholars at Tsinghua University in Beijing to implement a survey of Chinese enterprises to study their perception and mitigation of risks when investing overseas.

Junjie Zhang

Professor, UC San Diego GPS

Title: "Fiscal Incentives and Infrastructure: The Case of Sewage Treatment in China"

Summary:

Water pollution in China is extensive and serious. It is documented that 90% of aquifers in China’s cities are polluted, 54% of China’s rivers are not fit for consumption and water pollution-related damages to health alone cost China 9.47 billion RMB in 2003. Water quality is an important public health issue in China. Approximately 300 to 500 million Chinese lack access to piped water, and only 28% of rural households had access to improved sanitation.

Zhang’s project aims to explore the drivers of sewage treatment provision among cities in China and argue that China’s decentralized system of decision-making, as embodied in its system of tax revenue sharing, is a possibly significant explanation for the different levels of provision of environmental public infrastructure.

His research has demonstrated that cities in China respond to higher fiscal incentives by building more sewage treatment infrastructure. This suggests that financial incentives might be part of the solution to pressing water pollution treatment issues. While city-level fiscal incentives are too broad, targeted financial incentives might be provided to cities in key geographic areas, such as those upstream from large populations, or to cities sharing a common-pool water resource.

More broadly, results indicate that China has seen an increasing devolution of expenditures to local authorities, coupled with an increasing centralization of revenues to the central government. If fiscal incentives are an important driver of local government behavior, decreasing the local share of revenues may have significant unintended consequences. Since, on the margin, local governments will participate less in the gains of their investments, they may choose to invest less of their scarce resources in important infrastructure projects.