Export scope, managerial efficiency, and trade liberalization: Evidence from Chinese firms

This paper presents a theoretical and empirical analysis of the effects of market competition and market expansion on firms’ product line decisions. The theoretical model explicitly incorporates cost of management and firm heterogeneity in terms of managerial efficiency. Both the theoretical and empirical analyses show that the home country’s final-goods tariff cut (which captures market competition) reduces all home firms’ export product lines, while in response to a foreign country’s tariff cut (which represents market expansion), those firms with high (low) managerial efficiency expand (reduce) their export product lines. Our empirical analysis is based on data on Chinese firms from 2000 to 2006. The findings are robust to many specifications of the empirical model.