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Connect to trade

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  • Ding, Haoyuan
  • Fan, Haichao
  • Lin, Shu

Abstract

A key foundation of Chinese-style institutions is that governments at different levels control resources and utilize their power to support businesses connected to them. We examine how this institutional feature affects firm exports. We first provide a simple model to demonstrate the underlying mechanisms. In our model, politically connected firms gain a comparative advantage in contract-intensive and financially-dependent sectors. But political connections also have an adverse effect on firm exports because of managerial inefficiency. The overall effect is thus ambiguous and differs across sectors. Employing merged Chinese listed manufacturing firm data and Chinese custom data for the years 2004–2013, we find robust evidence consistent with our model's predictions.

Suggested Citation

  • Ding, Haoyuan & Fan, Haichao & Lin, Shu, 2018. "Connect to trade," Journal of International Economics, Elsevier, vol. 110(C), pages 50-62.
    • Handle: RePEc:eee:inecon:v:110:y:2018:i:c:p:50-62
    DOI: 10.1016/j.jinteco.2017.10.004
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    5. Feifei Wu & Xinyu Yan, 2018. "Institutional Quality and Sustainable Development of Industries’ Exports: Evidence from China," Sustainability, MDPI, vol. 10(11), pages 1-22, November.
    6. Zhang, Yi & Liu, Chun & Wang, Ting, 2020. "Direct or indirect? The impact of political connections on export mode of Chinese private enterprises," China Economic Review, Elsevier, vol. 61(C).
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    8. Jiatao Li & Haoyuan Ding & Yichuan Hu & Guoguang Wan, 2021. "Dealing with dynamic endogeneity in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(3), pages 339-362, April.
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    More about this item

    Keywords

    Political connections; Exports; Informal institutions; China;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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