Unilateral trade reform, Market Access and Foreign Competition: the Patterns of Multi-Product Exporters

Recent findings in international trade using detailed firm level surveys emphasize the microeconomic effects of trade liberalization episodes. A unilateral trade reform has two opposite effects on firms’ export patterns: (i) expansion of export opportunities for foreign firms exporting to that destination and (ii) intensification of foreign competition in the liberalized market. The main contribution of this paper is to investigate this trade-off between market access growth and tougher competitive pressures in the export market. Using detailed firm-product-destination data for French firms (1999-2005), we explore how the margins of French exports react to unilateral trade liberalization of Asian countries, with particular attention given to China. We exploit the exogenous variation in Chinese import tariff cuts relative to tariff changes in other Asian countries. Our findings suggest that French firms expanded the range of their exported products and the volume of exports to China relative to other Asian destinations after Chinese tariff liberalization. These results are robust when we explicitly account for foreign competition of third countries in the liberalized market. Quantitatively, a 7 percent declined of Chinese tariff on average during the period 1999-2005, results in almost 6 log points expansion of a firm’s export product scope and 14 log points of firms’ export sales.