Income Inequality and Financial Reform in Asia: The Role of Human Capital (with Jie Li)

​( Applied Economics, 2014, vol. 46, 2920-2935 )

We investigate whether financial reform can reduce income inequality in Asia, with particular emphasis on the role of human capital. Extending Galor and Zeira (1993), we demonstrate that financial reform is effective in reducing income inequality, and the effect is more profound in a country with higher human capital. Using the data for 18 countries in Asia, the region with the most promising financial reform, we confirm our theoretical finding. In addition, among disaggregated financial reforms, a lift of credit control, better banking supervision, and security market development seem to be significantly associated with a reduction of income inequality.​

This is the first paper that uses panel data to investigate the impact of individuals’ self-perceived relative income on life satisfaction. Analyses show that the self-perceived relative income has a significant impact on life satisfaction, but the impact is asymmetric. The decline in life satisfaction is much more significant due to perceiving a lower relative income in comparison to the rise in life satisfaction because of perceiving a higher relative income. Absolute income is only significantly and positively associated with life satisfaction in the pooled OLS estimations, but the association is never significantly different from zero when individual fixed effects are controlled. Household savings have a positive but small impact on life satisfaction. Among different financial-related shocks, people’s self-perceived relative income varies the most due to changes in household net income, total savings and employment status.

This paper investigates the causal effect of high school curriculum on various student outcomes including academic performance at the university, happiness, physical and mental health, self- confidence, confidence in academic ability, and attitudes towards studying and learning. We exploit a curriculum reform in China, the implementation of which started in 2004. The reform covered all provinces and municipal cities, and was rolled out in different years in different provinces. The new curriculum pivoted away from the old lock-step course structure where all students took the same courses and only those subject that were covered in the national university entrance exam were considered important. In contrast, the new curriculum introduced a course credit system, changed textbooks, and provided flexibility in course selection. It also introduced elective courses and made such courses as arts and physical education mandatory, and a graduation requirement. Using survey data on university students and employing a difference-in-difference approach, we find that the students who were exposed to the new curriculum in high school have better academic performance in university. They are happier, and their physical and mental well-being is better. These students are more likely to have positive attitudes towards themselves and they are more involved in student clubs. They have more confidence in their academic ability, they have more positive attitudes towards studying, and they have more general self-confidence. These results indicate that the reform had a significant impact on students’ academic success and well-being by allowing them to focus on subject matters in which they are interested, and by reducing undue stress of a regimented curriculum.

Working Papers

Am I the Big Fish? The Effect of Ordinal Rank on Student Academic Performance in Middle School

( Revised and Resubmitted to the Journal of Economic Behavior & Organization )

This paper investigates the causal effect of ordinal rank on students' academic performance in the short run. In addition, this paper provides the first direct evidence on the relationship between objective rank and the rank perceived by students, as well as the impact of self-perceived rank on students' academic attainments. The results show that students' ordinal rank has a significant positive effect on students' test scores. Moreover, when self-perceived rank and the objectively measured rank are considered simultaneously, the self-perceived rank dominates the effect on the students' educational achievement, indicating that the objective rank functions as a proxy for the rank of which students are aware. Taking advantage of the very detailed survey questions on students, parents, and teachers, a large set of potential mechanisms are examined in the paper.

This paper studies the correlation between relative income and subjective well-being (SWB) using data on self-perceived relative income from China. It shows that when individuals perceive their income to be lower than that of their relatives, colleagues, school mates, and neighbors, and the average income of the city or county where they live, this lowers their life satisfaction. The impact of relative income on SWB is monotonic—the lower an individual’s position in income comparisons, the larger the negative impact of perceived relative income on the SWB of that individual. People respond more strongly to unfavorable relative income positions than to favorable ones. The results are similar between men and women. The results hold when controlling for individual fixed effects by using the panel structure of the two waves of the survey.

The Effect of Public Health Insurance on Crime Recidivism (with Erkmen G. Aslim, Murat C. Mungan, and Carlos I. Navarro)

George Mason Law & Economics Research Paper No. 19-19, under journal review )

The prevalence of mental health and substance abuse disorders is high among incarcerated individuals. Many ex-offenders reenter the community without receiving any specialized treatment and return to prison with existing behavioral health problems. We consider a Beckerian law enforcement theory to identify different sources through which access to health care may impact ex-offenders' propensities to recidivate, and empirically estimate the effect of access to public health insurance on criminal recidivism. We exploit the plausibly exogenous variation in state decisions to expand Medicaid under the Affordable Care Act. Using administrative data on prison admission and release records from 2010 to 2016, we find that the expansions decrease recidivism for both violent and public order crimes. In addition, we find that the public coverage expansions substantially increase access to substance use disorder treatment. The effect is salient for individuals who are covered by Medicaid and referred to treatment by the criminal justice system. These findings are most consistent with the theory that increased access to health care reduces ex-offenders' perceived non-monetary benefits from committing crimes.

Can Superstition Create a Self-Fulfilling Prophecy? School Outcomes of Dragon Children of China (with Naci Mocan)

(NBER Working Paper No. 23709, under journal review )

In Chinese culture those who are born in the year of the Dragon under the zodiac calendar are believed to be destined for good fortune and greatness, and parents prefer their kids to be born in a Dragon year. Using provincial level panel data, we first show that the number of marriages goes up during the two years preceding a Dragon year and that births jump up in a Dragon year.  Using three recently collected micro data sets from China we show that those born in a Dragon year are more likely to have a college education, and that they obtain higher scores at the university entrance exam. Similarly, Chinese middle school students have higher test scores if they are born in a Dragon year. We show that these results are not because of family background, student self-esteem or students’ expectations about their future. We find, however, that the “Dragon” effect on test scores is eliminated when we account for parents’ expectations about their children’s educational and professional success. We find that parents of Dragon children have higher expectations for their children in comparison to other parents, and that they invest more heavily in their children in terms of time and money.  We also show that girls are about six cm shorter than boys, but that this height disadvantage is cut by about half if a girl is born in the year of the Dragon and that effect is twice as strong in rural areas. Given that childhood nutrition is related to adolescent height, this suggests that parents may also be investing in Dragon girls in terms of nutrition. The results are insensitive to model specification and estimation strategy, including using an RD design. These results show that even though neither the Dragon children nor their families are inherently different from other children and families, the belief in the prophecy of success and the ensuing investment become self-fulfilling.

Local Labor Market Shocks and Employment and Earnings Differentials: Evidence from Shale Oil and Gas Booms ​(with Gregory B. Upton)

(USAEE/IAEE Working Paperunder journal review)

In this research, we show that labor demand shocks to specific workers (male workers with high school education) in a specific industry that makes up a relatively small share of employment (oil and gas sector) can have significant impacts on earnings differentials both economy wide and within unrelated sectors. We estimate that a million dollars of new oil and gas production per person is associated with a 6.4% decrease in the college/high school earnings differential, and a 6.5% increase in the male/female earnings differential. We decompose the possible channels through which a productivity shock to the oil and gas sector can impact regional earnings differentials.

Using a randomized sample of middle school students from China, this paper investigates the causal effect of teacher-student gender match on students' self-perceived relative achievement in the class. The results suggest that having a female teacher significantly increases female students' self-perceived rank.