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Can production subsidies explain China's export performance? Evidence from firm level data

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  • Zhihong Yu
  • Yundan Gong
  • Sourafel Girma
  • Holger Görg

Abstract

It is widely accepted that China has been experiencing an export-led growth approach. However, the question whether government can reshape industry structure through production subsidies to enhance export performance has not been answered. This paper analyses the impact of production subsidies on firms’ export performance using a very comprehensive and recent firm level database and controlling for the endogeneity of subsidies. It documents robust evidence that production subsidies stimulate export activity, although this effect is conditional on firm characteristics. In particular, the beneficial impact of subsidies is found to be more pronounced amongst profit-making firms, firms in capital intensive industries and those located in non-coastal regions. Compared to firm characteristics, the extent of heterogeneity across ownership structure (SOEs, collectives and privately-owned firms) proves to be relatively less important

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1442.

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Length: 36 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:kie:kieliw:1442

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Keywords: Exporting; subsidies; China; endogenous Tobit;

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  1. Sourafel Girma & Holger Görg & Aoife Hanley, . "R&D and exporting: A comparison of British and Irish firms," Discussion Papers 07/18, University of Nottingham, GEP.
  2. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
  3. Lee G. Branstetter & Robert C. Feenstra, 1999. "Trade and Foreign Direct Investment in China: A Political Economy Approach," NBER Working Papers 7100, National Bureau of Economic Research, Inc.
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