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Growing up an only child in China at the end of the 20th century, Associate Professor of Public Policy at Harvard Kennedy School and CID Faculty Affiliate Jie Bai recalls a golden period of economic growth following post-Mao era reforms, and new opportunities for an emerging middle class.

“You saw your life getting better and better over time,” she says. “But, of course, in our youth, we didn’t fully understand the reform policies, how they were made, or what they meant for our generation, for China’s future.”

Her interest in studying economic development, and the policies that literally changed millions of lives, grew out of a moment of great disillusionment. As one of the top students in Shijiazhuang, the capital of Hebei province, Bai won a secondary school scholarship to study in Singapore through its Ministry of Education. Living abroad at 16, she learned for the first time about events like the Tiananmen Square protests of 1989, and the challenges her country faced, including poverty, corruption, and rising inequality – topics the communist party leadership kept a tight lid on.

At first, Bai felt overwhelmed. “I was like the frog in the well,” she says, referring to a popular Chinese idiom about a frog who believes the top of its well encircles the universe. One day, it jumps out of the well, and realizes how much bigger the world really is, and grows overwhelmed; looking back down the well, the frog can see only darkness.

Bai became determined to “do something to help my country and its people,” starting with shedding light on China’s economy. In her Singapore high school, she majored in economics and mathematics, and arrived at Yale already passionate about development economics. As an undergraduate, she learned “how to do good economics research, how a great economist thinks,” and how to marshal evidence to inform policy-making – skills which reinforced her plans to pursue an economics PhD at MIT, where she began studying firms and markets in developing countries.

For the last ten years, Bai’s research has illuminated what hinders and what drives private sector growth in developing countries, including China, East Africa, and Southeast Asia, where she also collaborates with policymakers to design, implement, and assess evidence-based policies.

Barriers to growth vary across countries, as well as between industries in a single country, but “if you take a bird's-eye view of the business landscape in developing countries, a few things really stand out,” she says. First, businesses are typically much smaller, and informally organized. There are many micro, small, and medium-sized enterprises as opposed to larger, established firms. Second, many of these firms look unproductive based on standard measures.

The initial goal of any project, Bai says, is to get an accurate lay of the land. The first generation of research focused on supply-side barriers such as lack of skilled labor or financial capital, leading to targeted interventions like firm training or credit access programs. Bai focuses on lesser known demand-side barriers, running, for example, a randomized controlled trial in to study how incentives to produce quality goods move down the supply chain, from the export gate to the farm gate, and whether distortions in the pass-through of quality incentives could, in part, explain the lack of quality investments seen among many small-scale Ugandan farmers.

Her project is one of the few studies to look at demand-side factors in hindering quality upgrading. Typically, in developing countries, firms face many different barriers, from both the supply side and demand side, she says. “A single policy or intervention cannot address all the constraints, but one could imagine important complementarities between interventions targeting both sides.” Ideally, you could design an intervention that shocks both sets of constraints and explicitly measure the complementarity – something that’s yet to be done due to its complexity.

Conducting empirical research in emerging economies requires an innovative approach: data availability is often limited, and trade and industrial policies are seldom randomly assigned, and tend to impact all firms within a targeted sector, making it hard to establish a control group. Bai confronts these challenges by leveraging diverse methods, from working with policymakers to design large-scale randomized controlled trials to running structural model estimations, to exploiting quasi-experimental variations in existing data.

In a on “quid pro quo” (technology for market access), a longstanding Chinese industrial policy that requires foreign firms to set up joint ventures with Chinese companies in order to access China’s market, Bai and her co-authors quantified the benefits of the policy for China’s automobile industry. Do presumed learning benefits actually occur, and how much of the benefits can be attributed to joint ventures (versus other factors)?

Facing data and control group identification challenges, Bai leveraged over a decade of quality surveys collected by consumer research company J.D. Power to isolate differences in relative quality associated with particular joint ventures (e.g., German automakers are highly rated for engine performance and safety, while Japanese cars tend to be highly rated for fuel efficiency).

Over time, domestic affiliates showed improvements in the same areas, thus establishing that knowledge spillover indeed occurred. Recent additional analysis suggests that worker flows and supplier networks mediate these learning benefits. Overall, knowledge spillovers due to ownership affiliation under quid pro quo contributed roughly 8% of the quality improvement experienced by affiliated domestic models between 2001 and 2014, relative to nonaffiliated domestic models.

A major point of contention for multinational companies, “quid pro quo has been at the forefront of the US-China trade debate, and was central to the Trump administration’s decision to impose tariffs on Chinese imports in 2018,” Bai says. China ended the policy in 2022, but tensions between the two countries and the potential for misunderstanding is growing.

To foster dialogue and deepen understanding of China’s economy and its global impact, Bai is leading a new China and the Global Economy initiative at CID, with co-chairs Jaya Wen, Assistant Professor of Business Administration at Harvard Business School and David Wang, Professor of Economics at Harvard Faculty of Arts and Sciences.

“This is a very challenging time for researchers and policymakers to engage with China,” says Bai. But as the world grows increasingly interdependent and multipolar, the need for policy and public engagement has never been more urgent. The U.S. sanctions on Huawei, for example, Bai notes, affects not just China and the U.S., but many developing countries in which Huawei holds as much as 40 percent of market share.

“If you withdraw Huawei from the global market, you’re withdrawing a very big player for many world markets,” she says. “How should we account for consumer welfare in Africa or South America? Are those consumers willing to switch to other brands? How will this affect the prices they can afford, or the variety of smartphones they can buy?”

Answers to these questions may or may not influence high-level policymaking in China or the US, but we need to understand the collateral damage incurred – often by developing countries. Harvard provides “an amazing platform … to address the misperception and disengagement between China and the U.S.,” she says. “As academic researchers, it is our responsibility to produce facts that go beyond hype and myth, to foster deeper policy dialogues grounded in rigorous evidence.”

In some ways, Bai reflects, I’m still like that frog in the well, driven to bridge the well (China) and the wider world.