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The effect of downstream expansion on upstream employment: Quasi-natural experimental evidence from China’s Accelerated Depreciation Policy

Author

Listed:
  • Chen, Xiaoxiong
  • He, Feng
  • Liu, Guanchun
  • Ye, Yongwei

Abstract

Taking China’s Accelerated Depreciation Policy in 2014 as a quasi-natural experiment, we run a difference-in-differences regression to investigate how downstream expansion affects an upstream firm’s hiring decision. We find that an expansion in downstream industries has a significant and positive impact on upstream employment, and this finding continues to hold after accounting for other contemporaneous shocks and is robust to a battery of robustness checks. Our mechanism tests demonstrate that the market size channel rather than the financial constraints channel dominates the positive nexus between downstream expansion and upstream employment. Further, this effect is more pronounced for firms with lighter financial constraints, higher labor intensity and greater policy enforcement. Taken together, our findings suggest that tax policies for specific industries would have a general equilibrium effect on the real economy through production networks.

Suggested Citation

  • Chen, Xiaoxiong & He, Feng & Liu, Guanchun & Ye, Yongwei, 2022. "The effect of downstream expansion on upstream employment: Quasi-natural experimental evidence from China’s Accelerated Depreciation Policy," Research in International Business and Finance, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:riibaf:v:63:y:2022:i:c:s0275531922001763
    DOI: 10.1016/j.ribaf.2022.101790
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    More about this item

    Keywords

    Downstream expansion; Upstream employment; Difference-in-differences estimate; Accelerated Depreciation Policy; China;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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