The effectiveness of entry deregulation: Quasi-experimental evidence from China's export compulsory inspection deregulation

When and how to phase out existing regulations represents a critical policy issue for developing countries. This paper investigates the effects of export inspection deregulation, exploiting the removal of China's compulsory inspection regulation for export commodities as a quasi-experiment. We construct a unique firm-level panel dataset comprising 8700 observations by mapping 10-digit HS product codes to firm identifiers and integrating four distinct micro-databases. Using a difference-in-differences (DID) framework, we find that deregulating export compulsory inspection exerts an overall positive impact on firm exports, without causing a significant decline in export quality as measured by consumer willingness to pay. We also find that inspection deregulation strengthens firms' innovation capacity, which suggests that innovation could be a mechanism that promotes export performance. Furthermore, we find that the effects of export inspection deregulation are stronger in industries characterized by higher levels of competition. Our findings provide empirical evidence for the benefits of periodic regulatory re-evaluation and suggest that well-designed phase-out mechanisms can foster innovation-led growth in emerging economies.