Hongyu Xiao

Cultural Affinity, Regulation and Market Structure: Evidence from the Canadian Retail Banking Industry

Forthcoming, American Economic Journal: Microeconomics

(With Hector Perez-Saiz)

We estimate a perfect information static entry game to study the effect of cultural entry barriers on entry and competition in the retail banking industry. Canada provides a favorable setting for analysis due to its high linguistic diversity, concentrated market, and regulatory entry barriers. We find that cultural affinity between customers and financial institutions that share a common cultural origin plays an important role in explaining the comparative advantages of these institutions in certain markets. Using several counterfactual experiments and additional empirical evidence, we show that the effectiveness of regulations intended to foster competition is significantly limited by cultural barriers, which is a key determinant that shapes the competitive landscape of the industry.

Commuting and Innovation: Are Closer Inventors More Productive?

Published, Journal of Urban Economics

(With Andy Wu and Jaeho Kim)

We estimate the causal effect of workplace–home commuting distance on inventor productivity. We construct a novel panel of U.S. inventors with precisely measured workplace–home distances and inventor-level productivity. Our identification strategy exploits firm office relocations as exogenous variation in the commuting distance of inventors at the firms. We find a significant negative effect from commuting distance on inventor productivity: every 10 km increase in distance is associated with a 5% decrease in patents per inventor–firm pair per year and an even greater 7% decrease in patent quality. The highest-performing inventors suffer more from increased commuting distance. We discuss the implications of our findings in the light of recent trends around telecommuting and remote work during the COVID-19 pandemic.