Jing Cai is an Associate Professor at the Department of Agricultural and Resource Economics at the University of Maryland. Her research has focused on the diffusion and impact of finance and insurance, testing different approaches to improving the growth of micro, small, and medium firms, and the use of taxes for industrial policies.
1. We usually like to start by asking the interviewee to tell us a bit about how they decided to become a development economist, and what drew them to the area of work that they focus most on. Can you tell us a bit about your pathway to becoming a development economist, and to focus on finance and firms?
When I was in high school, my dream was to become a computer scientist because I believe computer technology has the power to change the world, and that’s why I choose computer science as my major when I entered college. During my junior year, I did an internship at the largest rural bank in China, and that experience completely changed my trajectory. I was assigned to work on a rural credit project, issuing loans to rural households and enterprises. To gain knowledge about our clients’ needs, I participated in numerous interviews with farmers and business owners. I was surprised that many of them refused to talk with us or apply for a loan, despite the potential benefits of using credit to fund investments and spur growth. The curiosity led me to audit some courses in the economic department, which I found to be far more interesting than coding…..As a result, I changed my major to Economics, and decided to focus on development economics given my interests in rural finance.
During my graduate studies, I conducted several projects to understand barriers faced by rural households in adopting financial projects. However, when I talked with government officials, a question often came up was, can you share some experience from other countries on how to support the growth of SMEs? At that time, there was not many development economists working on that area, but obviously SMEs play a significant role in driving economic growth and more rigorous evidence is needed to guide policy making. Consequently, I choose to focus more on firm issues after I finished my dissertation.
2. You currently teach in a department of agricultural and resource economics (ARE). For our readers, many of whom are currently PhD students and considering where to work after graduating, what differences, if any, do you find from being in an ARE department compared to an economics department? Does it affect what topics you work on, what or how you teach, or have other differences that might be of interest?
I have experience working in both Economics and Agricultural and Resource Economics (ARE) departments, and I find that there aren't many differences, especially for those who focus on development economics, environmental economics, and energy economics, which are the primary areas of focus for many ARE departments. However, there are two advantages to being in an ARE department. The most significant advantage is that faculty in ARE departments typically teach fewer courses (about 2 per year) compared to those in general economics departments. Additionally, graduate research assistants are often funded by the department. For example, every year, I get two RAs paid by the department.
There are certain factors that create slightly different incentives for faculty in ARE departments compared to those in Economics departments. ARE is usually under the College of Agricultural and Natural Resources, which means that tenure cases for ARE faculty are evaluated by committees comprised not only of economists but also of scientists who run labs. Consequently, there is a higher expectation for ARE faculty to secure grants compared to Economics departments. Moreover, in the quality-quantity tradeoff, ARE faculty face greater incentives to generate quantity because the publication cycle in other disciplines is much shorter than in economics journals.
3. One of your best known papers is your 2018 QJE paper with Adam Szeidl on interfirm relationships, in which you get firms in Nanchang, China to meet once a month, every month, for a year with one another in small business associations, finding this has persistent impacts on sales, profits, and management. I was always struck by how high compliance was here, with 87% attendance, when these meetings were half a day on average each time. Given the difficulties we see around the world in getting firms (and individuals) to continue to show up to free trainings, such high attendance really surprised me. I’ve always wondered whether this is because there was a partnership with the local government department, and when the Chinese government asks firms to do something there is much higher compliance than when governments in most other countries do, or if you think this is something that can apply in most countries? I know many World Bank teams have discussed how to use your ideas in other places – what are your reflections now on how easy it is to take “works in China” to elsewhere?
I’m delighted to hear that there is interest in replicating the idea elsewhere! While I agree that partnering with the government was immensely beneficial, it's worth noting that participation in the program and meeting attendance were never mandated by governmental. Instead, I believe that various aspects of the program's design played significant roles in its success, offering valuable insights that could be applicable in other countries or contexts.
Firstly, unlike many business training evaluations, our sample of firms was carefully selected; only young firms (less than 3 years old) that expressed interest in participating in business associations were included. This aspect implies that similar interventions are more likely to succeed when managers themselves are eager to enhance their networks and businesses. One potential method to identify such firms could be through an explicit recruitment process.
Moreover, we implemented incentives to encourage regular attendance at meetings. Specifically, we offered a certificate from the government to participating managers who attended most of the monthly sessions. This certificate designated the firms as part of the database of Micro, Small, and Medium-sized Enterprises (MSMEs) in the city. In China, inclusion in this database is often seen as a mark of excellence for both individuals and firms and can lead to improved access to various government services. Our discussions with sample firms indicated that they highly valued the benefits associated with this certificate. Consequently, offering meaningful incentives contingent upon satisfactory participation could effectively enhance overall engagement.
Finally, our program differs significantly from traditional classroom trainings in that managers have the autonomy to shape it themselves. In our groups, members took turns hosting meetings and visited each other’s companies, supplementing discussions with practical observations of business operations. Many managers expressed that witnessing firsthand the operations of other firms was a valuable learning experience, often inspiring them to adopt new operational or management strategies. This underscores the importance of considering novel ideas that resonate with participants' interests to enrich the program design, potentially increasing the likelihood of success for business associations policies.
4. You have written several papers on insurance, including work on weather insurance for rice-producing farmers in China. With climate change, there is increasing interest in different types of adaption and mitigation mechanisms that can be used. As you note, one of the challenges with insurance is that it is an experience good, and people may not keep purchasing it if they cannot learn from observing payouts. How do you see this operating when it comes to catastrophic climate insurance – e.g. protecting against 1 in 50 or 1 in 100 year events (which perhaps these days happen every decade)? Do you see this as something you can sell to farmers, or that needs to be either mandated or state-provided?
I think achieving a high voluntary uptake on such products will be challenging. Tracing farmers several years following the introduction of weather insurance in China, my research indicates that positive experiences with insurance, particularly receiving payouts, indeed bolster demand. However, this effect typically diminishes over time without additional intervention. It's only when individuals also receive education about insurance that they internalize the positive signal, which in turn influences their uptake permanently. Consequently, both experiencing payouts and a good understanding of insurance are necessary to sustain long-term uptake. Given that catastrophic disasters are rare occurrences, making it challenging for individuals to gain experience, I believe mandating or fully subsidizing such insurance may be necessary.
5. Industrial policy has re-emerged as a hot policy topic, and many countries look to see what can be learned from China’s experiences, particularly in growing green energy industries. I know you’ve worked on a couple of papers on the use of tax instruments as part of industrial policy in China, and on the role of competition in who gets supported. What’s the main takeaway you draw from this work as to the key design features such policies need?
Using a large dataset covering all “above scale” firms in China, we demonstrate that industrial policies allocated to competitive sectors or those fostering competition within a sector through dispersed allocation tend to increase productivity growth. Consequently, the primary takeaway from our research is that effective industrial policies should prioritize fostering competition. The rationale behind this is that, in the absence of industrial policy, innovative firms may opt to operate in different sectors to avoid intense competition in the product market. This tendency can lead to high sectoral concentration and diminished incentives for innovation due to a 'monopoly replacement effect.' In such scenarios, industrial policies that incentivize firms to operate within the same sector—such as through tax holidays or other tax subsidy schemes—can mitigate concentration in the targeted sector and bolster incentives for innovation. Hence, there exists a complementarity between competition and well-designed industrial policies in stimulating innovation and fostering productivity growth.
6. What current project are you most excited about working on? Any early findings or surprises to share?
One message from my QJE paper on business networks is that group members supported each other by establishing partnerships or referring potential partners to one another. In a follow-up project (with Adam Szeidl and Wei Lin), we delve deeper into the frictions involved in forming supplier-client networks.
Specifically, we ask, do firm-to-firm search frictions lead to inefficient matches between suppliers and clients? Can partnering interventions improve business outcomes? These questions may be particularly important in low-income countries in which weak infrastructure and poor contract enforcement can generate large search frictions. To make progress answering them, we conducted a field experiment with about 800 firms in China, in which we evaluated the impact of referring business partners. Despite the firms having been in operation for many years, we find that the intervention had a large effect on firm networks and improved business performance. Our results suggest that firm-to-firm search frictions are an important growth barrier and that matchmaking interventions can generate substantial gains.
Here are our previous Six Questions with interview series:
· Six questions with Chris Udry
· Six questions with Rohini Pande
· Six questions with Mark Rosenzweig
· Six questions with Martin Ravallion
· Six questions with Andrew Foster
· Six questions with Tavneet Suri
· Six questions with Morgan Hardy
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