Import liberalization and export product mix

Abstract

This paper develops a monopolistic competition model of multiproduct
firms to explain the effect of trade liberalization on the product mix of multiproduct
exporting firms. The model shows that input-tariff reduction leads to increases
in a firm’s export values, especially for products that are farther from a firm’s
core competency. To test the theoretical predictions, we use the merged data built
upon the highly disaggregated Chinese firm-level production data and customs
data for 2000-2006. Consistent with the theory, the positive impact of input trade
liberalization on export value is found to be more pronounced for peripheral
products, and input-tariff reduction also expands a firm’s product scope, affecting
firm’s average productivity.

Keywords: Product mix, trade liberalization

JEL Classification: F1