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Abstract
How do reductions in input trade costs affect firm's sales decision between domestic and foreign markets? By using Chinese firm-level production data and transaction-level trade data during 2000–2006 to construct firm-specific input trade costs, we find rich evidence that a reduction in input trade cost for large trading firms leads to an increase in export intensity (i.e., exports over total sales). The impact is more pronounced for ordinary firms than that for hybrid firms which engage in both processing and ordinary trade since ordinary import enjoys the free-duty treatment in China. The declining input trade costs not only increase the probability of firm's being new exporters (i.e., extensive margin) but also lead to higher export intensity (i.e., intensive margin). Such results are robust to different empirical specification and econometric methods.
Acknowledgements
We thank Wei-Chih Chen, Robert Feenstra, Gordon Hanson, Chang-Tai Hsieh, Brad Jensen, Samuel Kortum, Zhiyuan Li, Justin Lin, Robert Staiger, James Tybout, Yang Yao, Jun Zhang, and seminar and conference participants from the 14th NBER-CCER Conference, the Second China Trade Research Group (CTRG) Conference, the Third IEFS (China) Conference, BREAD-Guanghua Summer School, Zhejiang University, Nankai University, and Shanghai School of Foreign Trade for their helpful comments and constructive suggestions. However, all errors are ours.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. Lu, Lu, and Tao (Citation2010) also use Chinese firm-level data to find that, among foreign affiliates, exporters are less productive than non-exporters. Dai, Maitra, and Yu (Citation2012) points out the key reason for such a phenomenon is due to the prevalence of processing trade in China.
2. Source of the data: http://tariffdata.wto.org/ReportersAndProducts.aspx.
3. For example, some family-based firms, which usually have no formal accounting system in place, reports their production information based on a unit of one RMB, whereas the official requirement is a unit of 1000 RMB.
4. The detailed method and technique can be found from Yu (Citation2013).
5. Most commodities are mandatory to pay 13% or 17% value-added tax for their value added in China. However, if such commodities are exportable goods, firms can get the value-added tax rebate when such products are exported. The value-added tax rate is set as 5%, 9%, 11%, 13%, or 17%, which is contingent on products.
6. Of course, when tariff decreases, the import weight
for the product
for firm
could change as well. However, change the weight to a fixed weight using the initial year in the period (
) or a floating one-period lag weight (
) does not change our estimation results.
Additional information
Notes on contributors
Wei Tian
Wei Tian works in the School of International Trade and Economics, University of International Business and Economics. Her current main research interests focus on outward FDI and export intensity of Chinese firms. She has published papers in Review of Development Economics, Journal of China and Global Economics, and Economic Research Journal (in Chinese).
Miaojie Yu
Miaojie Yu is a professor in the China Center for Economic Research (CCER), National School of Development, Peking University. His current research focuses on processing trade, firm productivity, trade liberalization, and credit constraints. He has published papers in The Economic Journal, Review of Economics and Statistics, and Journal of Development Economics. He is the deputy editor of China Economic Journal and an editorial board member of China Economic Review.