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Input Prices, Productivity and Trade Dynamics: Long-run Effects of Liberalization on Chinese Paint Manufactures

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  • Paul Grieco

    (Pennsylvania State University)

  • Hongsong Zhang

    (University of Hong Kong)

  • Shengyu Li

    (Durham University)

Abstract

Input tariff liberalization encourages direct importing by lowering the relative price of directly imported intermediate inputs relative to domestic alternatives. In turn, the action of importing itself encourages productivity growth. We develop a dynamic structural model to illustrate how input tariff reduction affects trading decisions and firm performance. The model features firm heterogeneity in both input prices and productivity. We find a mild short-term effect of input tariff liberalization from China's accession to WTO in the paint industry. The effect is amplified in the long run by induced trade participation, resulting in even higher aggregate productivity and lower input prices. Overall, this effect increases the average present firm value by 2.3 percent.

Suggested Citation

  • Paul Grieco & Hongsong Zhang & Shengyu Li, 2018. "Input Prices, Productivity and Trade Dynamics: Long-run Effects of Liberalization on Chinese Paint Manufactures," 2018 Meeting Papers 874, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:874
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