Trade Liberalization, Firm Exits, and Productivity: Evidence from Chinese Plants
39 Pages Posted: 19 Sep 2008
Date Written: September 14, 2008
China has experienced dramatic trade liberalization in the late 1990s. In this paper, I investigate the impact of trade liberalization on firm productivity by using both Chinese manufacturing firm-level data and highly disaggregated Chinese import data over 1998-2002. For this purpose, I first calculate firm's total factor productivity (TFP) by adopting an augmented Olley-Pakes (1996) semi-parametric methodology to correct the simultaneous bias from the reverse causality and selection bias from firm's exit. After controlling for the endogeneity issue, trade liberalization is found to significantly boost firm's productivity. Moreover, the effect of trade liberalization on firm's productivity in exporting firms are found to be smaller than that in non-exporting firms.
Keywords: Trade Liberalization, Productivity, Chinese Plants
JEL Classification: F1, L1, O1, O2
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