UC Davis

Economic activities vary across regions, and individuals and markets respond differently to macroeconomic shocks, national policies, or uniform local policies. Understanding the patterns of regional economies and predicting local trends are critical for policy-making and business decisions. This dissertation examines the outcomes of local economies in response to the most discussed policies and prevailing global trends. Specifically, it studies the impact of free college policies, monetary policy, and export slowdown.

Chapter 1 studies the effectiveness of Promise Programs in the short and long term, which aim to provide free or reduced-cost college tuition, fees, and other expenses to eligible students based on their residency, academic merit, or financial need. In chapter 1, I develop a dynamic spatial model that allows newborn agents to decide whether to attend college based on the skill premium and their education costs. Tuition cut provided by the local governments reduce newborn agents' education cost and increase college going rate, at the expense of local income tax. Some agents move and some agents stay. Chapter 1 finds that in places near innovative counties, many agents that received tuition cut move, unlikely to promote local development, whereas in distant places, enough stay makes the program worthwhile.

Chapter 2 investigates the heterogeneous effects of monetary policy on housing prices across growing cities and declining cities. Using the local projections method, we find that, overall, the nominal housing prices decrease by 3.4\% within four years in response to a 1\% interest rate increase. The housing prices drop by slightly more than 4\% (trough) in growing areas, whereas the housing prices in declining areas drop by around 2.5\% (trough). Urban growth contributes to the heterogeneous effects of monetary policy through the land scarcity channel.

Chapter 3 examines the impact of export slowdown on household saving rate with China Family Panel Studies survey data. I exploit variation in local exposure to export slowdown to study households' response to income shocks induced by global export slowdown following the Great Financial Crisis. Using a shift-share instrumental variable, I find that export slowdown is associated with a decrease in household saving rate, with the more pronounced effects concentrating on urban areas. To explain this consequence, we propose the inertia expectation adjustment mechanism, based on the Permanent Income Hypothesis: when adverse income shock hits, households keep consumption level if they keep high expectation of the future, thus lower the saving rates. I test this mechanism using data for households' confidence about the future and confirm that export slowdown decreases households' saving rates through this expectation adjustment mechanism.