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Processing trade, export intensity, and input trade liberalization: evidence from Chinese firms

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  • Wei Tian
  • Miaojie Yu

Abstract

How do reductions in input trade costs affect firm's sales decision between domestic and foreign markets? By using Chinese firm-level production data and transaction-level trade data during 2000–2006 to construct firm-specific input trade costs, we find rich evidence that a reduction in input trade cost for large trading firms leads to an increase in export intensity (i.e., exports over total sales). The impact is more pronounced for ordinary firms than that for hybrid firms which engage in both processing and ordinary trade since ordinary import enjoys the free-duty treatment in China. The declining input trade costs not only increase the probability of firm's being new exporters (i.e., extensive margin) but also lead to higher export intensity (i.e., intensive margin). Such results are robust to different empirical specification and econometric methods.

Suggested Citation

  • Wei Tian & Miaojie Yu, 2015. "Processing trade, export intensity, and input trade liberalization: evidence from Chinese firms," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 20(3), pages 444-464, July.
    • Handle: RePEc:taf:rjapxx:v:20:y:2015:i:3:p:444-464
    DOI: 10.1080/13547860.2015.1054169
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    Cited by:

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    2. Duan Lianjie, 2023. "Export Cutoff Productivity, Uncertainty and Duration of Waiting for Exporting," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 17(1), pages 1-19, January.
    3. Bin, Peng & Chen, Xiaolan & Fracasso, Andrea & Tomasi, Chiara, 2018. "Resource allocation and productivity across provinces in China," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 103-113.
    4. Sourafel Girma & Holger Görg, 2022. "Productivity effects of processing and ordinary export market entry: A time‐varying treatments approach," Review of International Economics, Wiley Blackwell, vol. 30(3), pages 836-853, August.
    5. Gonzalo Varela & Juan Pedro Gambetta & Federico Ganz & Andreas Eberhard & Sebastian Franco & Stefania Lovo, 2020. "Import Duties and Performance," World Bank Publications - Reports 33886, The World Bank Group.
    6. Lili Yan Ing & Wei Tian & Maiojie Yu, "undated". "China’s Processing Trade and Value Chains," Working Papers DP-2018-02, Economic Research Institute for ASEAN and East Asia (ERIA).
    7. Kenneth S. Chan & Miaojie Yu, 2016. "Special Section: China's Growing Trade and its Role to the World Economy," Pacific Economic Review, Wiley Blackwell, vol. 21(1), pages 32-34, February.
    8. Marco Bee & Maria Michela Dickson & Flavio Santi, 2018. "Likelihood-based risk estimation for variance-gamma models," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 27(1), pages 69-89, March.
    9. Wei Tian & Miaojie Yu, 2017. "Firm R&D, Processing Trade and Input Trade Liberalisation: Evidence from Chinese Firms," The World Economy, Wiley Blackwell, vol. 40(2), pages 297-313, February.
    10. Haichao Fan & Tuan Anh Luong & Edwin L‐C. Lai & Lina Zhang, 2022. "Import liberalization and export product mix," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(1), pages 419-457, February.
    11. Gabriella Berloffa & Eleonora Matteazzi & Paola Villa, 2017. "The intergenerational transmission of worklessness in Europe.The role of fathers and mothers," DEM Working Papers 2017/04, Department of Economics and Management.
    12. Gabriella Berloffa & Eleonora Matteazzi & Alina Şandor & Paola Villa, 2019. "The quality of employment in the early labour market experience of young Europeans," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 43(6), pages 1549-1575.
    13. Sun, Churen & Wu, Han, 2023. "The impact of export VAT rebate on firm-product markups: Evidence from Chinese industrial enterprises," Economic Modelling, Elsevier, vol. 119(C).
    14. Dai, Mi & Maitra, Madhura & Yu, Miaojie, 2016. "Unexceptional exporter performance in China? The role of processing trade," Journal of Development Economics, Elsevier, vol. 121(C), pages 177-189.
    15. Fu, Qiuyao & Zhang, Teng & Li, Yunong, 2021. "Trade liberalization induced profitability enhancement? The impact of intermediate input imports on firm profitability," Journal of Asian Economics, Elsevier, vol. 75(C).
    16. Bai, Xue & Hong, Shengjie & Wang, Yaqi, 2021. "Learning from processing trade: Firm evidence from China," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 579-602.
    17. Xi Lin & Ling-Yun He, 2023. "The More the Merrier? Evidence from Firm-Level Exports and Environmental Performance in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(1), pages 125-172, January.
    18. Miaojie Yu, 2020. "China-US Trade War and Trade Talk," Springer Books, Springer, number 978-981-15-3785-1, December.

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