First-year MPhil student Quint Wiersma presented his paper ‘Time variation in the competitiveness of product and labor markets of Chinese firms: An application of the distance test’, co-authored with fellow Sabien Dobbelaere (VU Amsterdam) at the 5th Conference of the International Association for Applied Econometrics (IAAE) that took take place in Montreal (Canada) on June 26-29.
This paper, which Quint initiated as a bachelor thesis at VU Amsterdam in 2017 under the supervision of S. Dobbelaere, examines the empirical applicability of multivariate testing procedures that are designed to cope with inequality constraints, or inequality and equality constraints simultaneously. These types of constraints are quite important in applied research, e.g. in econometric analysis, economics and biology, as it is often the case that the researcher has some a priori beliefs about the parameters of the model based on existing research and/or theory. The main empirical difficulty in applying inequality constraint testing procedures is determining the weights in the weighted-χ² distribution. The paper first investigates the empirical applicability of the distance test of Kodde and Palm (Econometrica, 1986), which is an inequality constraint testing procedure that is particularly useful for tackling economic problems. It then demonstrates how to implement the distance test in applied economic research by examining potential shifts in Chinese firms’ product and labor market settings after China’s accession to the World Trade Organization at the end of 2001, using the classification procedure of Dobbelaere and Mairesse (Journal of Applied Econometrics, 2013). Conditional on the obtained classification, the authors finally estimate the impact of WTO accession on price distortions in product and labor markets by exploiting variation in tariff reductions. In 2018, the paper has been accepted for presentation at the Society of Labor Economists (SOLE) Conference, IAAE and the European Association of Labour Economists (EALE) conference.