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Product Relatedness and Firm Exports in China

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  • Sandra Poncet
  • Felipe Starosta de Waldemar

Abstract

We propose the first evaluation using micro-level data of the gains from the consistency of activities with a local comparative advantage. Using firm-level data from Chinese customs over the 2000–6 period, we investigate the relationship between the export performance of firms and how their products relate to local comparative advantage. Our key indicator measures the density of the links between a product and the local product space. Hence, it combines information on the intrinsic relatedness of a good with information on the local pattern of specialization. Our results indicate that exports grow faster for goods that have denser links with those currently produced in the firm's locality. The density of links between products seems to yield export-enhancing spillovers. However, we show that this positive effect of product relatedness on export performance is mainly limited to ordinary trade activities and domestic firms. It is also stronger for more productive firms, suggesting that spillover diffusion may be hindered by insufficient absorptive capacity.

Suggested Citation

  • Sandra Poncet & Felipe Starosta de Waldemar, 2015. "Product Relatedness and Firm Exports in China," The World Bank Economic Review, World Bank, vol. 29(3), pages 579-605.
    • Handle: RePEc:oup:wbecrv:v:29:y:2015:i:3:p:579-605.
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    File URL: http://hdl.handle.net/10.1093/wber/lht037
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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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