Trading Partners, Traded Products and Firm Performances of China's Exporter‐Importers: Does Processing Trade Make a Difference?

30 Pages Posted: 23 Dec 2012

See all articles by Zheng Wang

Zheng Wang

De Montfort University; GEP, University of Nottingham

Zhihong Yu

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP)

Date Written: December 2012

Abstract

In this study, we explore a newly available unique data set that links China’s international trade transactions to its manufacturing firms’ census data and establish a number of interesting stylised facts linking firms’ key economic performances to their exporting‐importing behaviours. One novelty of our analysis is that we distinguish between ordinary trade and processing trade; the latter involves importing inputs and materials to be assembled and re‐exported to the overseas market. Several novel patterns emerge. First, we discover significant heterogeneity within two‐way traders – in terms of size, productivity and factor intensity – depending on their engagement in processing exports/imports. Whilst the existing literature typically finds that two‐way traders are larger and more productive than one‐way traders, we show that pure processing two‐way traders are actually the least productive and exhibit the lowest capita/skill intensity compared to one‐way traders. Second, consistent with the market hierarchy hypothesis, larger and more productive firms trade with a larger number of trade partners that are on average ‘less popular’ as characterised by longer distances and smaller market size. Remarkably, this pattern is highly symmetric between exports and imports, as well as between ordinary and processing trade. Third, firms with greater capital and skill intensities source more complex inputs from countries with higher income per capita, and this pattern holds only for ordinary imports but not for processing imports. While some of our findings confirm existing stylised facts reported for other countries, some patterns we discover are new to the literature and remain to be reconciled with the heterogeneous firm trade theory.

Suggested Citation

Wang, Zheng and Yu, Zhihong, Trading Partners, Traded Products and Firm Performances of China's Exporter‐Importers: Does Processing Trade Make a Difference? (December 2012). The World Economy, Vol. 35, Issue 12, pp. 1795-1824, 2012, Available at SSRN: https://ssrn.com/abstract=2193220 or http://dx.doi.org/10.1111/twec.12019

Zheng Wang

De Montfort University ( email )

Department of Economics and Marketing
The Gateway
Leicester, LE1 9BH
United Kingdom

HOME PAGE: http://zhengwang.weebly.com/

GEP, University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Zhihong Yu

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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