Productivity and Firms’ Sales Destination: Chinese Characteristics

18 Pages Posted: 20 Jul 2015

See all articles by Qun Bao

Qun Bao

Nankai University

Jiuli Huang

Nankai University

Yanling Wang

Carleton University

Date Written: August 2015

Abstract

In the trade literature, it is often assumed that there is little or no trade cost within a country's borders, but large trade costs across a country's borders. Thus, productive firms self‐select into exporters and the less productive firms can only serve domestic consumers. This paper presents a similar but different case in China, whose domestic markets are segmented by provincial borders mainly owing to the various (hidden) protective measures favoring local firms. These discriminative measures are de facto trade barriers. It applies the heterogeneous trade theory to examine the effects of firms’ productivity on their sales choices in both the international and domestic markets, in the presence of intra‐national and international trade costs. We find that productive firms not only self‐select into exporters, but also into sales in other provincial markets. This pattern is sensitive to firms’ locations and ownerships. For foreign direct investment (FDI)‐controlled firms, increases in productivity are associated with a higher probability of selling into other provincial markets, rather than into international ones. Productivity increases for firms operating in the inland area exhibit different patterns than those in the Eastern area.

Suggested Citation

Bao, Qun and Huang, Jiuli and Wang, Yanling, Productivity and Firms’ Sales Destination: Chinese Characteristics (August 2015). Review of International Economics, Vol. 23, Issue 3, pp. 620-637, 2015. Available at SSRN: https://ssrn.com/abstract=2632751 or http://dx.doi.org/10.1111/roie.12181

Qun Bao (Contact Author)

Nankai University ( email )

94 Weijin Road
Tianjin, 300071
China

Jiuli Huang

Nankai University ( email )

94 Weijin Road
Tianjin, 300071
China

Yanling Wang

Carleton University ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

HOME PAGE: http://https://carleton.ca/npsia/people/yanling-wang/

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