Intermediate Imports, Institutional Environment, and Export Product Quality Upgrading: Evidence from Chinese Micro-Level Enterprises

ABSTRACT

Based on matched data from the Chinese industrial enterprise database and General Administration of Customs (GAC) database for 2000–2013, this paper examines export manufacturers in the context of significantly varying institutional environments to investigate how intermediate imports and the institutional environment affect export product quality. The results show that, first, intermediate imports affect product quality through four channels: the competition effect, knowledge spillover effect, intermediate quality effect, and intermediate diversification effect. Second, improvement in the institutional environment has a direct and positive impact on product quality, as well as strengthening the effect of intermediate imports; in this sense, the two factors are complementary in influencing market share reallocation. Third, the investigation of the import duration impact on product quality from dynamic perspectives shows a U-shaped correlation. This paper provides a theoretical and practical basis for strengthening the international competitiveness of China’s export products and improving the regional institutional environment.

KEY WORDS:

• Export product quality
• institutional environment
• intermediate imports

JEL:

• F10
• F12
• F13

Notes

1. Based on the BEC (Broad Economic Catalog) classification standards, we divide the 2013 GAC database into enterprises with intermediate imports and enterprises without intermediate imports. The two databases are aggregated separately to determine the ratio of intermediate imports to total imports.

2. http://unstats.un.org/unsd/trade/classifications/correspondence-tables.asp.

3. http://unstats.un.org/unsd/trade/classifications/correspondence-tables.asp.

4. The region-fixed effect refers to whether an enterprise is in the eastern, western, or the central region of China.

5. In the equation 0.0002*(8.89–2.98), 0.0002 is the estimated coefficient of lnmedinput* ins, and 8.9 and 2.98 are the 2013 institutional environment scores for Shanghai and Xinjiang, respectively.

6. Intermediate quality is calculated using the same method as that for export quality. It is not included here because of length considerations.

7. Based on Bas and Strauss-Kahn (2014), we define “type” as “the diversification level of intermediate products imported by enterprises” and change the label “types” to num.

8. Industrial institutional dependence means the sensitivity of different industries to contract execution efficiency. The greater the industry’s institutional dependence, the more sensitive the industry is to contract execution efficiency (Nunn 2007).

9. https://scholar.harvard.edu/nunn/pages/data-0/.

Additional information

Funding

This paper is financial supported by the National Natural Science Foundation of China (71773081) and Youth outstanding talent training program of Sichuan University（SKSYL201812).