Imported-Input Trade Liberalization and Firms' Export Performance in China: Theory and Evidence

48 Pages Posted: 21 Apr 2016

See all articles by Haichao Fan

Haichao Fan

Shanghai University of Finance and Economics - School of International Business Administration

Edwin L.-C. Lai

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Han Steffan Qi

Hong Kong University of Science & Technology (HKUST)

Date Written: March 24, 2016

Abstract

The literature on trade liberalization has recently shifted its attention from trade liberalization in imported final goods to studying the effects of trade liberalization in imported intermediate inputs. This emphasis fits very well the trade liberalization experience of China following its accession to the WTO in 2001. We build a multi-sector heterogenous-firm model with trade in both intermediate goods and final goods, and we ask: How do final-goods producers respond to trade liberalization in imported inputs? Do they respond differently across sectors? How do firms respond differently to trade liberalization in imported-outputs instead? We decompose the total effect of trade liberalization into those caused by inter-sectoral resource allocation (IRA) and by within-sector selection of firms according to productivity (which we call Melitz selection effect). It is the IRA effect that gives rise to differential impacts of trade liberalization in different sectors. These impacts include changes in the probability of entry into the export market, the fraction of firms that export and the share of export revenue. We test our hypotheses using Chinese firm-level data for the years after China’s accession to WTO in 2001. The results generally support our hypotheses.

Keywords: imported-input liberalization, firms’ export performance, China

JEL Classification: F120, F140

Suggested Citation

Fan, Haichao and Lai, Edwin L.-C. and Qi, Han Steffan, Imported-Input Trade Liberalization and Firms' Export Performance in China: Theory and Evidence (March 24, 2016). CESifo Working Paper Series No. 5828. Available at SSRN: https://ssrn.com/abstract=2767405

Haichao Fan

Shanghai University of Finance and Economics - School of International Business Administration ( email )

777 Guo-ding Road
Shanghai, 200433
China

Edwin L.-C. Lai (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China

Han Steffan Qi

Hong Kong University of Science & Technology (HKUST) ( email )

Department of Economics
Clear Water Bay
Kowloon, 999999
Hong Kong

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