Input Prices, Productivity and Trade Dynamics: Long-run Effects of Liberalization on Chinese Paint Manufacturers

57 Pages Posted: 12 Feb 2020

See all articles by Paul L.E. Grieco

Paul L.E. Grieco

Pennsylvania State University - Department of Economics

Shengyu Li

University of New South Wales - School of Economics

Hongsong Zhang

University of Hong Kong

Date Written: May 31, 2019

Abstract

We develop a dynamic structural model to analyze the impact of input tariff liberalization on input prices, trading decisions, productivity, and firm performance. While input tariff liberalization directly affects input price benefits of importing, its impact on trade participation generates indirect benefits through additional channels, such as productivity improvements and complementarity between importing and exporting. To disentangle these effects, our model separately measures importing's effect on intermediate input prices and productivity. We apply the model to examine the reaction of Chinese paint manufacturers to China's accession to the World Trade Organization (WTO). We find a mild short-term effect of input tariff liberalization in the industry. The effect is amplified in the long run by induced trade participation, resulting in even higher aggregate productivity and lower input prices. Overall, this effect increases the average present firm value by 2.3 percent.

Keywords: Imported Intermediate Inputs, Direct Importing, Productivity, Dynamics, China

JEL Classification: D24, F14, L11

Suggested Citation

Grieco, Paul L.E. and Li, Shengyu and Zhang, Hongsong, Input Prices, Productivity and Trade Dynamics: Long-run Effects of Liberalization on Chinese Paint Manufacturers (May 31, 2019). Available at SSRN: https://ssrn.com/abstract=3521720 or http://dx.doi.org/10.2139/ssrn.3521720

Paul L.E. Grieco

Pennsylvania State University - Department of Economics ( email )

University Park
State College, PA 16802
United States

Shengyu Li (Contact Author)

University of New South Wales - School of Economics ( email )

High Street
Sydney, New South Wales
Australia

Hongsong Zhang

University of Hong Kong ( email )

Pokfulam Road
Hong Kong
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
209
PlumX Metrics