How export firms respond to the public procurement localization of destination countries: evidence from China

ABSTRACT

Public procurement has increasingly been used by many countries as a form of trade protection. This study is the first to examine the response of export firms to public procurement localization (PPL). Utilizing data from the Global Trade Alert database and detailed micro-data of Chinese export firms, we reveal that PPL induces significant trade diversion effects at the firm level. Specifically, it leads to a reduction in the continuous export value of affected products, though it does not result in an immediate product market exit for these firms. To mitigate the demand shocks caused by PPL, firms respond by reducing the variety of their exported products.

KEYWORDS:

• Public procurement localization
• exports
• trade policy
• trade diversion effects

JEL CLASSIFICATION:

• F13
• F14
• H57

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ See https://www.commerce.gov/oam/build-america-buy-america.

² These data are calculated by the authors based on the GTA database.

³ Specifically, it includes 14 countries: Argentina, Belarus, Brazil, Canada, India, Indonesia, Israel, Japan, Kazakhstan, Nigeria, Paraguay, Russia, Turkey and Ukraine.

4 The regression sample in the column (2) of Table 6 includes both firms that export in consecutive years (exit = 0 at this time) and firms that export in the current year but not in the next (exit = 1 at this time). The sample for the benchmark regression, however, only consists of firms that export in both successive years. So the sample used in the benchmark regression is a subset of the sample used in column (2) of Table 6.

⁵ Tariff changes are not included due to dimensional issues.

Additional information

Funding

Zeyang Jin was sponsored by the Shanghai Pujiang Programme [23PJC077]. Authors acknowledge financial support from the National Natural Science Foundation of China [No.72173087] and Key Program of the National Social Science Foundation of China [No.23AZD081].