IDEAS home Printed from https://ideas.repec.org/p/era/wpaper/dp-2016-29.html
   My bibliography  Save this paper

Indonesia and China: Friends or Foes? Quality Competition and Firm Productivity

Author

Listed:
  • Lili Yan Ing

    (Economic Research Institute for ASEAN and East Asia (ERIA), University of Indonesia)

  • Miaojie Yu

    (Peking University)

  • Rui Zhang

    (Peking University)

Abstract

We define and measure “firm-product-destination-year-specific export quality” and investigate how quality competition from China affects Indonesian firm productivity in the domestic and export markets. Our results suggest that an increase in Chinese exported product quality by 10 percent will increase the productivity of Indonesian firms by 0.4 - 0.5 percent in Indonesia’s domestic market, and increase Indonesian exporters’ productivity by 2 percent in the export market. Where we limit our sample to exporters only, an increase in Chinese exported product quality will increase Indonesian firm productivity in the export market, but not in the domestic market. Our findings broaden the horizon through which firms could benefit from opening up to trade.

Suggested Citation

  • Lili Yan Ing & Miaojie Yu & Rui Zhang, 2016. "Indonesia and China: Friends or Foes? Quality Competition and Firm Productivity," Working Papers DP-2016-29, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2016-29
    as

    Download full text from publisher

    File URL: http://www.eria.org/ERIA-DP-2016-29.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 87-117.
    2. Mary Amiti & Amit K. Khandelwal, 2013. "Import Competition and Quality Upgrading," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 476-490, May.
    3. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    4. Kalina Manova & Zhiwei Zhang, 2012. "Export Prices Across Firms and Destinations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 379-436.
    5. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    6. George Alessandria & Joseph P. Kaboski, 2011. "Pricing-to-Market and the Failure of Absolute PPP," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 91-127, January.
    7. Haichao Fan & Yao Amber Li & Stephen R. Yeaple, 2015. "Trade Liberalization, Quality, and Export Prices," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 1033-1051, December.
    8. Robert C. Feenstra & Zhiyuan Li & Miaojie Yu, 2014. "Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 729-744, October.
    9. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2012. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351.
    10. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 477-527.
    11. Dai, Mi & Maitra, Madhura & Yu, Miaojie, 2016. "Unexceptional exporter performance in China? The role of processing trade," Journal of Development Economics, Elsevier, vol. 121(C), pages 177-189.
    12. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    13. Lili Yan Ing, 2009. "Lower Tariff, Rising Skill Premium in Developing Countries: Is it a Coincidence?," The World Economy, Wiley Blackwell, vol. 32(7), pages 1115-1133, July.
    14. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    15. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    16. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    17. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
    18. Xu, Bin, 2003. "Trade liberalization, wage inequality, and endogenously determined nontraded goods," Journal of International Economics, Elsevier, vol. 60(2), pages 417-431, August.
    19. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 417-474.
    20. Miaojie Yu, 2015. "Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms," Economic Journal, Royal Economic Society, vol. 125(585), pages 943-988, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mari Pangestu & Lili Yan Ing & Gracia Hadiwidjaja, 2018. "The Future of East Asia’s Trade: A Call for Better Globalization," Asian Economic Policy Review, Japan Center for Economic Research, vol. 13(2), pages 219-238, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fan, Haichao & Li, Yao Amber & Yeaple, Stephen R., 2018. "On the relationship between quality and productivity: Evidence from China's accession to the WTO," Journal of International Economics, Elsevier, vol. 110(C), pages 28-49.
    2. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    3. Shang, Di & Diao, Gang & Zhao, Xiaodi, 2020. "Have China's regulations on imported waste paper improved its quality," Forest Policy and Economics, Elsevier, vol. 119(C).
    4. Ana P. Fernandes & Heiwai Tang, 2020. "Fast Fashion: Theory and Evidence from Portuguese Textile and Clothing Firms," CESifo Working Paper Series 8125, CESifo.
    5. Haichao Fan & Yao Amber Li & Stephen R. Yeaple, 2015. "Trade Liberalization, Quality, and Export Prices," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 1033-1051, December.
    6. Bas, Maria & Strauss-Kahn, Vanessa, 2015. "Input-trade liberalization, export prices and quality upgrading," Journal of International Economics, Elsevier, vol. 95(2), pages 250-262.
    7. Saito, Hisamitsu, 2021. "Foreign direct investment and quality upgrading in Indonesian manufacturing," MPRA Paper 106770, University Library of Munich, Germany.
    8. Feng, Ling & Li, Zhiyuan & Swenson, Deborah L., 2016. "The connection between imported intermediate inputs and exports: Evidence from Chinese firms," Journal of International Economics, Elsevier, vol. 101(C), pages 86-101.
    9. repec:hal:wpspec:info:hdl:2441/6ggbvnr6munghes9oc1hggs11 is not listed on IDEAS
    10. Jiayun Xu & Qilin Mao, 2018. "On the relationship between intermediate input imports and export quality in China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 26(3), pages 429-467, July.
    11. repec:hal:spmain:info:hdl:2441/6ggbvnr6munghes9oc1hggs11 is not listed on IDEAS
    12. Colantone, Italo & Crinò, Rosario, 2014. "New imported inputs, new domestic products," Journal of International Economics, Elsevier, vol. 92(1), pages 147-165.
    13. Crinò, Rosario & Ogliari, Laura, 2015. "Financial Frictions, Product Quality, and International Trade," CEPR Discussion Papers 10555, C.E.P.R. Discussion Papers.
    14. Bie, Xiaodong & Ciani, Andrea, 2021. "Born similar, develop apart: Evidence on Chinese hybrid exporters," DICE Discussion Papers 364, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    15. Adriana Peluffo & Juan Ignacio Scasso, 2016. "Destination and source countries: Do they have a role on product quality?," Documentos de Trabajo (working papers) 16-10, Instituto de Economía - IECON.
    16. Copestake, Alexander & Zhang, Wenzhang, 2023. "Inputs, networks and quality-upgrading: Evidence from China in India," China Economic Review, Elsevier, vol. 77(C).
    17. Doan Thi Thanh Ha & Hongyong Zhang, 2022. "Technical Barriers to Trade, Product Quality and Trade Margins: Firm-level Evidence," Working Papers DP-2021-54, Economic Research Institute for ASEAN and East Asia (ERIA).
    18. Valérie Smeets & Sharon Traiberman & Frederic Warzynski, 2014. "Offshoring and the Shortening of the Quality Ladder: Evidence from Danish Apparel," Working Papers 2014-14, CEPII research center.
    19. Amiti, Mary & Dai, Mi & Feenstra, Robert C. & Romalis, John, 2020. "How did China's WTO entry affect U.S. prices?," Journal of International Economics, Elsevier, vol. 126(C).
    20. Longzhou Wang, 2023. "The Impact of Environmental Regulation on Firms’ Product Quality: Evidence from Chinese Exporters," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(3), pages 645-672, November.
    21. Choi, ByeongHwa, 2023. "The impact of financial development on innovation-based exports: Do all firms benefit equally?," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 81-100.
    22. Crinò, Rosario & Ogliari, Laura, 2017. "Financial imperfections, product quality, and international trade," Journal of International Economics, Elsevier, vol. 104(C), pages 63-84.

    More about this item

    Keywords

    Quality; productivity; competition; firm-level study; China; Indonesia;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:era:wpaper:dp-2016-29. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ranti Amelia (email available below). General contact details of provider: https://edirc.repec.org/data/eriadid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.