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Unexceptional exporter performance in China? The role of processing trade

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  • Dai, Mi
  • Maitra, Madhura
  • Yu, Miaojie

Abstract

The firm level trade literature finds that exporters are exceptional performers for a wide range of countries and measures. Paradoxically, the one documented exception is the world's largest exporter, China. We show that this puzzling finding is entirely driven by firms that engage only in export processing — the activity of assembling tariff exempted imported inputs into final goods for resale in the foreign markets. We find that processing exporters are less productive than non-processing exporters and non-exporters, and have inferior performance in many other aspects such as profitability, wages, R&D and skill intensity. Accounting for processing exporters explains the abnormality in exporter performance in China documented in the previous literature. Low fixed costs of processing exporting, as well as the trade and industrial policies favoring processing exporters are both responsible for the low productivity of processing exporters. Our analysis suggests that distinguishing between processing and non-processing exporters is crucial for understanding firm-level exporting behavior in China. It also provides caveats in analyzing the exporter performance in other developing countries that are highly integrated into the global value chains.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:deveco:v:121:y:2016:i:c:p:177-189
    DOI: 10.1016/j.jdeveco.2016.03.007
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    Cited by:

    1. L. An & C. Hu & Yong Tan, 2017. "Regional effects of export tax rebate on exporting firms: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 25(4), pages 774-798, September.
    2. Lectard Pauline, 2017. "Working Paper 292 - Chaines de valeur et Transformation structurelle soutenable," Working Paper Series 2402, African Development Bank.
    3. Yao Amber Li & Valerie Smeets & Frederic Warzynski, 2017. "Processing Trade, Productivity and Prices: Evidence from a Chinese Production Survey," Economics Working Papers 2017-12, Department of Economics and Business Economics, Aarhus University.
    4. Leila Baghdadi & Sonia Ben Kheder & Hassen Arouri, 2017. "In Search of A New Development Model For Tunisia: Assessing the Performance of the Offshore Regime," Working Papers 1118, Economic Research Forum, revised 07 Jun 2017.
    5. Schmerer, Hans-Jörg & Wang, Luhang, 2014. "Firm Performance and Trade with Low-Income Countries: Evidence from China," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100487, Verein für Socialpolitik / German Economic Association.
    6. Nie, Huihua & Jiang, Ting & Yang, Rudai, 2012. "A Review and Reflection on the Use and Abuse of Chinese Industrial Enterprises Database," MPRA Paper 50945, University Library of Munich, Germany.
    7. Lili Yan Ing & Miaojie Yu & Rui Zhang, 2016. "Indonesia and China: Friends or Foes? Quality Competition and Firm Productivity," Working Papers DP-2016-29, Economic Research Institute for ASEAN and East Asia (ERIA).
    8. repec:eee:chieco:v:45:y:2017:i:c:p:168-194 is not listed on IDEAS
    9. Cheng, Dong & Hu, Zhongzhong & Tan, Yong, 2017. "Time-Varying Impacts of Financial Credits on Firm Exports: Evidence from Trade Deregulation in China," MPRA Paper 80657, University Library of Munich, Germany.
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    13. Larry Qiu & Miaojie Yu, 2014. "Multiproduct Firms, Export Product Scope, and Trade Liberalization: The Role of Managerial Efficiency," Working Papers 022014, Hong Kong Institute for Monetary Research.
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    16. repec:eee:energy:v:125:y:2017:i:c:p:55-61 is not listed on IDEAS
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    19. Vivian Yue & Jiandong Ju, 2013. "A Unified Model of Structural Adjustments and International Trade: Theory and Evidence from China," 2013 Meeting Papers 859, Society for Economic Dynamics.
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    23. Defever, Fabrice & Riaño, Alejandro, 2017. "Subsidies with export share requirements in China," Journal of Development Economics, Elsevier, vol. 126(C), pages 33-51.
    24. Ari Van Assche & Jo Van Biesebroeck, 2017. "Functional upgrading in China’s export processing sector," Working Papers Department of Economics 590692, KU Leuven, Faculty of Economics and Business, Department of Economics.

    More about this item

    Keywords

    Processing trade; Firm productivity; Export;

    JEL classification:

    • F1 - International Economics - - Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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