Leniency, Tigers and Flies. Evidence from Chinese Anti-corruption.
Maria Berlin (SITE)
Martin Dufwenberg (University of Arizona)
Bei Qin (University of Hong Kong)
Giancarlo Spagnolo (SITE, EIEF, Tor Vergata, CEPR)

Abstract : We map the evolution of the Chinese anti-corruption legislation and document a large stable fall in prosecuted cases after a reform that strengthened leniency and asymmetry of sanctions in 1997. This is consistent with either reduced corruption detection, or improved deterrence. To resolve the ambiguity and shed light on the question of whether leniency policy might help fighting corruption, we start with an empirical investigation into the case of China, to our knowledge the earliest attempt to use this type of tools. We also substantiate the thesis that while invoking one legal asymmetry may be a good idea, combining two of them is not, by setting up a game-theoretic model in which this is true. We use the model to derive a series of testable predictions to subsequently refine the empirical analysis. Results point to a lack of deterrence effect, plausibly linked to a different aim of the reform: a refocusing of effort from "flies" to "tigers".

Trading with the Enemy: the Impact of Conflict on Trade in Non-conflict Areas
Vasily Korovkin (CERGE-EI)
Alexey Makarin (Northwestern University)

Abstract : This study presents novel evidence on the effects of conflict on trade in non-conflict areas. We examine the context of the ongoing Russian military intervention in Ukraine. In a difference-in-differences framework, we leverage a newly compiled firm-level panel with the universe of Ukrainian trade transactions from 2013 through 2016 and exploit substantial spatial variation in the ethnic composition of Ukrainian counties. The estimates suggest that Ukrainian firms from counties with fewer ethnic Russians experienced a deeper decline in trade with Russia. We argue that this result stems from increased ethnic tensions and a differential rise in negative attitudes and beliefs about Russia. Possible mechanisms include consumer boycotts of Russian products, reputational concerns of Ukrainian firms, and a breakdown of trust in contract enforcement. In contrast, we find no evidence for individual-level animosity between firms' key decision makers or discrimination at the border. We also rule out that the differential decline in trade arises only from economic spillovers, such as refugee flows and destruction of supply chains with conflict areas.

Enemies of the People
Gerhard Toews (New Economic School)
Pierre-Louis Vezina (King's College London)

Abstract : Enemies of the people were the millions of intellectuals, artists, businessmen, politicians, professors, landowners, scientists, and auent peasants that were thought a threat to the Soviet regime and were sent to the Gulag, i.e. the system of forced labor camps throughout the Soviet Union. In this paper we look at the long-run consequences of this dark re-location episode. We show that areas around camps with a larger share of enemies among prisoners are more prosperous today, as captured by night lights per capita, firm productivity, wages, and education. Our results point in the direction of a long-run persistence of skills and a resulting positive effect on local economic outcomes via human capital channels.