How cultural trade policy shapes export Performance? A theoretical and empirical study of China's cultural product exports

This paper examines whether cultural trade policy can expand cultural exports in the presence of “cultural discount,” which generates implicit trade frictions across markets. While existing studies document that cultural distance constrains cultural trade, systematic quantitative evidence on the effectiveness of cultural trade policy remains limited. We develop a heterogeneous-firm model with endogenous quality choice and implicit trade costs, and test its predictions using China's 2014 cultural trade policy and cultural export data from 2009 to 2019. Employing a difference-in-differences framework in which cultural distance proxies for policy exposure, we find that the policy significantly increases cultural export values. Mechanism analysis shows that this effect operates primarily through quality upgrading rather than marginal cost reductions. The policy also lowers bilateral tariffs and cultural trade costs, while having limited effects on external cultural communication. Further analysis indicates that export growth is driven mainly by expansion along the intensive margin, suggesting that future policy design should place greater emphasis on promoting extensive-margin growth.