Quid Pro Quo, Knowledge Spillover, and Industrial Quality Upgrading: Evidence from the Chinese Auto Industry

Friday, October 13, 2023
12:00 PM - 1:20 PM

Goldman Room E409, Encina Hall

  • Jie Bai, Assistant Professor in Public Policy, Harvard Kennedy School

SCCEI Seminar Series (Fall 2023)

Friday, October 13, 2023 | 12:00 pm -1:20 pm Pacific Time
Goldman Room E409, Encina Hall, 616 Jane Stanford Way

Quid Pro Quo, Knowledge Spillover, and Industrial Quality Upgrading: Evidence from the Chinese Auto Industry

This paper studies the impact of foreign direct investment (FDI) via quid pro quo (technology for market access) in facilitating knowledge spillover and quality upgrades. Our context is the Chinese automobile industry, where foreign automakers are required to set up joint ventures (the quid) with domestic automakers in return for market access (the quo). The identification strategy exploits a unique dataset of detailed vehicle quality measures along multiple dimensions and relies on within-product quality variation across dimensions. We show that affiliated domestic automakers, compared to their nonaffiliated counterparts, adopt more similar quality strengths of their joint venture partners. Quid pro quo generates knowledge spillover to affiliated domestic automakers in addition to any industry-wide spillover. We rule out alternative explanations involving endogenous joint venture network formation, overlapping customer bases, or direct technology transfer via market transactions. Analyses leveraging additional micro datasets on worker flows and upstream suppliers demonstrate that labor mobility and supplier networks are important channels mediating knowledge spillover. Finally, we estimate an equilibrium model for the auto industry and quantify the impact of quid-pro-quo-induced  quality upgrading on domestic sales and profits. Quid pro quo improved the quality of affiliated domestic models by 3.8-12.7% and raised their sales (profit) by 0.9-3.9% (1.02-3.49%) relative to unrestricted FDI.

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About the Speaker 

Jie Bai headshot

Jie Bai is an Assistant Professor in Public Policy at Harvard Kennedy School. Her research lies at the intersection between development, trade and industrial organization, focusing on microeconomic issues of firms in developing countries and emerging markets. Her past projects have examined firms’ incentive and ability to build a reputation for quality, collective reputational forces in export markets, the relationship between firm growth and corruption, and the impact of internal trade barriers among Chinese provinces on firms' export behavior. Her current ongoing work includes studying growth and reputation dynamics in online markets, technology transfer and knowledge spillovers among firms, and quality incentives and upgrading along supply chains. Professor Bai received her Ph.D. in Economics from Massachusetts Institute of Technology in June 2016 and spent one year at Microsoft Research New England prior to joining Harvard Kennedy School.


Please join us in-person in the Goldman Conference Room located within Encina Hall on the 4th floor of the East wing.

Questions? Contact Xinmin Zhao at xinminzhao@stanford.edu