Effects of Privatization on Exporting Decisions: Firm-level Evidence from Chinese State-owned Enterprises

This paper examines whether privatizing Chinese state-owned enterprises increases the probability of exporting and, if so, what factors generate such an effect. Using firm-level data for the Chinese manufacturing sector for the 2000–2007 period, we find that privatization positively affects a firm’s productivity, size, and decision to export, whereas we find that it negatively affects the level of a firm’s long-term debt. We also find that Chinese firms are more likely to export when the productivity level, firm size, or the level of long-term debt increases. Taken together, these two sets of results suggest that privatization positively affects the likelihood that a firm will export by improving productivity and increasing firm size, whereas it negatively affects such a likelihood by lowering the long-term debt level of the firm. However, a quantitative analysis reveals that the effects of privatization that occur through these three channels are only slight. Therefore, we conclude that the positive effect of privatization on the likelihood of exporting is mainly the result of unobservable factors that are most likely related to changes in attitude about the profits and risks associated with privatization.