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Diversification or Specialization? The Responses of Multi-Product Exporters to Quota Removal

Author

Listed:
  • Ruxue Bai
  • Lei Li
  • Ying Li
  • Libo Yin

Abstract

This paper investigates how multi-product firms narrow their product scope and target fewer export destinations in response to increased demand. Focusing on the effects of quota removal, we show that an increase in demand for quota-bound products crowds out quota-free products through cannibalization, and reduces exports to quota-free destinations through capacity constraint. Consistent with the theory, our findings reveal a 25% increase in product concentration and a 2% increase in destination concentration among Chinese exporters after the removal of externally imposed quotas on textile and clothing exports. The increasing concentration is due to the export shifts from quota-free to quota-bound products and destinations. Subsequently, affected firms exhibit better capital market performances, with a 5% higher abnormal return within the three-day event window.

Suggested Citation

  • Ruxue Bai & Lei Li & Ying Li & Libo Yin, 2024. "Diversification or Specialization? The Responses of Multi-Product Exporters to Quota Removal," CRC TR 224 Discussion Paper Series crctr224_2024_533, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_533
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    Keywords

    Import quota; multi-product firms; cannibalization effect; diversification; demand linkages; supply linkages; exports; stock market;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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