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Trade and product market policies in upstream sectors and productivity in downstream sectors: Firm-level evidence from China

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  • Bas, Maria
  • Causa, Orsetta

Abstract

This paper explores the heterogeneous productivity impact of trade, product market and financial market policies over the last decade in China. The paper makes a critical distinction between downstream and upstream industries, focusing on the indirect effects of regulation in upstream industries on firm performance in downstream manufacturing industries. We identify the differential effect of these policies on firm productivity growth depending on how far incumbents are relative to the technological frontier. Trade and product market reforms are found to deliver stronger gains for firms that are closer to the industry-level technological frontier, while the reverse holds for financial market reforms. The key conclusion that can be derived from the empirical analysis is that further product, trade and financial market reforms would bring substantial gains in China and could therefore speed up the convergence process. Taken at face value, the empirical estimates would imply that aligning product, trade and financial market regulation to the average level observed in OECD countries would bring aggregate manufacturing productivity gains of respectively 9%, 3% and 6.5% after 5years.

Suggested Citation

  • Bas, Maria & Causa, Orsetta, 2013. "Trade and product market policies in upstream sectors and productivity in downstream sectors: Firm-level evidence from China," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 843-862.
  • Handle: RePEc:eee:jcecon:v:41:y:2013:i:3:p:843-862
    DOI: 10.1016/j.jce.2013.01.010
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    2. Yang, Yang & Mukhopadhaya, Pundarik & Yu, Zhuangxiong, 2020. "Relationship between city size and firm productivity – A new interpretation using the Chinese experience," Economic Modelling, Elsevier, vol. 93(C), pages 546-558.
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    4. Devashish Mitra, 2019. "Responses to Trade Opening: Evidence and Lessons from Asia," Working Papers id:12977, eSocialSciences.
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    7. Maria Bas & Åsa Johansson & Fabrice Murtin & Giuseppe Nicoletti, 2016. "The effects of input tariffs on productivity: panel data evidence for OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(2), pages 401-424, May.
    8. Thanh Tam Nguyen-Huu & Minh Nguyen-Khac & Quoc Tran-Nam, 2017. "The role of environmental regulations and innovation in TFP convergence: Evidence from manufacturing SMEs in Vietnam," WIDER Working Paper Series 092, World Institute for Development Economic Research (UNU-WIDER).
    9. Christine de la Maisonneuve, 2016. "How to boost export performance in Greece," OECD Economics Department Working Papers 1299, OECD Publishing.
    10. Gnangnon, Sèna Kimm, 2020. "Aid for Trade and Services Export Diversification in Recipient-Countries," EconStor Preprints 210467, ZBW - Leibniz Information Centre for Economics.
    11. Sèna K. Gnangnon, 2021. "Aid for Trade and services export diversification in recipient countries," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 189-225, June.
    12. Fritsch, Michael & Changoluisa, Javier, 2017. "New business formation and the productivity of manufacturing incumbents: Effects and mechanisms," Journal of Business Venturing, Elsevier, vol. 32(3), pages 237-259.
    13. Fida Karam & Chahir Zaki, 2020. "A new dawn for MENA firms: service trade liberalization for more competitive exports," Applied Economics, Taylor & Francis Journals, vol. 52(1), pages 19-35, January.
    14. Xinyu Hou & Yingying Shi & Puyang Sun, 2021. "Foreign Entry Liberalization And Export Quality: Evidence From China," Contemporary Economic Policy, Western Economic Association International, vol. 39(1), pages 205-219, January.
    15. Sai Ding & Puyang Sun & Wei Jiang, 2019. "The Effect of Foreign Entry Regulation on Downstream Productivity: Microeconomic Evidence from China," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 925-959, July.
    16. Thanh Tam Nguyen-Huu & Minh Nguyen-Khac & Quoc Tran-Nam, 2017. "The role of environmental regulations and innovation in TFP convergence: Evidence from manufacturing SMEs in Vietnam," WIDER Working Paper Series wp-2017-92, World Institute for Development Economic Research (UNU-WIDER).
    17. Hayakawa, Kazunobu & Mukunoki, Hiroshi & Yang, Chih-hai, 2020. "Liberalization for services FDI and export quality: Evidence from China," Journal of the Japanese and International Economies, Elsevier, vol. 55(C).
    18. Bas, Maria, 2020. "The effect of communication and energy services reform on manufacturing firms’ innovation," Journal of Comparative Economics, Elsevier, vol. 48(2), pages 339-362.
    19. Avdiu,Besart & Bagavathinathan,Karan Singh & Chaurey,Ritam & Nayyar,Gaurav, 2022. "India's Services Sector Growth : The Impact of Services Trade on Non-tradable Services," Policy Research Working Paper Series 10094, The World Bank.
    20. Duan, Yuwan & Dietzenbacher, Erik & Los, Bart & Yang, Cuihong, 2021. "How much did China's emergence as “the world's factory” contribute to its national income?," China Economic Review, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Firm-level data; Productivity; Trade liberalisation; Product market reform; Financial liberalisation;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L8 - Industrial Organization - - Industry Studies: Services

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