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Lose to gain: Heterogeneous impact of trade policy uncertainty on firms’ domestic sales

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  • Liu, Qing
  • Li, Yuqing
  • Li, Shuaihang
  • Wu, Feifei

Abstract

How do firms adjust their domestic sales in response to external shocks? Based on the data of China's industrial enterprises in the years around China's World Trade Organization accession, this study uses the difference-in-differences method to empirically analyze the impact of trade policy uncertainty (TPU) on firms' domestic sales. The findings show that TPU decline has significantly decreased firms' domestic sales and that the effect is most pronounced for the least productive firms. We present a market-directed transformation story, which predicts that less productive firms are more willing to lose domestic sales to gain exports. The results of further empirical analysis are consistent with theoretical predictions.

Suggested Citation

  • Liu, Qing & Li, Yuqing & Li, Shuaihang & Wu, Feifei, 2023. "Lose to gain: Heterogeneous impact of trade policy uncertainty on firms’ domestic sales," Economic Modelling, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003558
    DOI: 10.1016/j.econmod.2022.106118
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    More about this item

    Keywords

    Trade policy uncertainty; Domestic sales; Market-directed transformation;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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