The 'Productivity Paradox' of Chinese Export Firms: Review and Assessment

Abstract

This paper represents an attempt to test the relationship between the exports and productivity of Chinese firms using the data set of nearly 3 million industrial firms in 20 industrial sectors over the period 1998-2007. Our test finds that non-export firms were more productive than export firms and exports were negatively related to productivity - namely that the lower the productivity of a firm, the higher its exports. This finding is in contradiction with the hypothesis of new-new trade theory. The contradiction is referred to as the “productivity paradox” in this paper. Further tests find that firm size is a key factor affecting firm exports, but the impact of exports on firm productivity is insignificant. This paper reckons that the "productivity paradox" of Chinese export firms may be attributed to the disproportionate share of processing trade in export trade.

Keywords: New-new trade theory, firm heterogeneity, productivity, export trade