Input Trade Liberalization and the Export Duration of Products: Evidence from China

• DOI: http://doi.org/10.1111/cwe.12305
• Author: Jingjing Yang,Dinggen Zhou,Mingyong Lai
• Date: 01 November 2019
• Published date: 01 November 2019

©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 1–25, Vol. 27, No. 6, 2019

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*Dinggen Zhou, Assistant Professor, School of Business, Central South University, China. Email:

503323830@qq.com; Jingjing Yang (corresponding author), Associate Professor, School of Economics and

Trade, Hunan University, China. Email: yangjingjing0216@hotmail.com; Mingyong Lai, Professor, School

of Economics and Trade, Hunan University, China. Email: laimingyong@126.com. This work was supported

by the National Social Science Fund of China (No. 71172020) and the Natural Science Foundation of Hunan

Province of China (No. 2018JJ2069).

Input Trade Liberalization and the Export Duration of

Products: Evidence from China

Dinggen Zhou, Jingjing Yang, Mingyong Lai*

Abstract

This paper introduces a quasi-natural experimental framework into trade policy

evaluation and reassesses China’s trade liberalization through the survival of export

products. We use propensity score matching and China’s dual trade system to design a

quasi-natural experiment based on Chinese industrial enterprises, customs import and

export, and tariff data over the period of 2000–2006; we then use survival analysis to

study the impacts of China’s trade liberalization on the export duration of manufacturing

firms’ products. We find that the substantial reduction in import tariffs after China’s

accession to the World Trade Organization enhances the export duration of firm

products, indicating that trade liberalization ameliorates the survival of export products.

The promotion effects of tariff reduction on export duration are obviously stronger for

core products than for noncore products.

Key words: export duration, propensity score matching, survival analysis, trade

liberalization

JEL codes: D21, F10, F13

I. Introduction

After World War II, the growth rate of cross-border trade far exceeded the growth rate

of world GDP. In order to integrate into the global trading system, developing countries

have embraced trade liberalization. Trade liberalization reforms have a far-reaching

impact on the economies of developing countries. A great deal of literature is devoted

to studying the impacts of trade liberalization policies on the productivity of domestic

enterprises. Krishna and Mitra (1998) rst examined trade liberalization reform in India

Dinggen Zhou et al. / 1–25, Vol. 27, No. 6, 2019

©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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in 1991 and found that the degree of market competition improved and scale effects

declined during the reform period. Within a few years of the reform, the growth rate of

enterprise productivity had increased slightly. The following studies rened the effects of

trade liberalization in promoting productivity. Amiti and Konings (2007) and Topalova

and Khandelwal (2011) concluded that tariff reduction enhances the competitiveness of

the import market and lower-cost inputs improve enterprise productivity. Controlling for

selection and simultaneity bias while estimating productivity, Pavcnik (2002) studied

trade liberalization reform in Chile from the late 1970s to the early 1980s and found that

the improved productivity resulting from trade liberalization is mainly derived from the

redistribution of resources; that is, resources are transferred from low-productivity to

high-productivity enterprises.

China has also accelerated the process of trade liberalization after the reform and

opening up policies. Yu (2010, 2011) found that China’s trade liberalization signicantly

improved the productivity of enterprise and had a stronger effect on the productivity of

export and processing trade enterprises than non-export and general trade enterprises.

Zhang et al. (2013) measured the level of service trade liberalization in China and

found that service trade liberalization also promoted the productivity of manufacturing

enterprises. In addition to the role of trade liberalization in improving enterprise

productivity, Yu and Li (2016) found that China’s trade liberalization improved the

quality of imported intermediaries.

In recent years, studies on trade liberalization have focused upon product level

and have investigated the influences of trade liberalization from the perspective of

product mix, price, quality, etc. Bernard et al. (2010) illustrated that trade liberalization

encourages rms to expand production of their most successful products. The decline

in trade costs leads firms to abandon products with low productivity and causes the

least productive rms to withdraw from the market. This process promotes the average

productivity of survivors and industries as a whole. Bas and Strauss-Kahn (2015)

analyzed the causality between import tariff reduction and the price of trade products

in China. They found that trade liberalization increases the price of import inputs and

export products. Fan et al. (2015) applied the endogenous product quality hypothesis to

a heterogeneous trade model and found that tariff reduction encourages rms to choose

better quality products and higher prices. In their empirical analysis, they used the

highest-level (rm-product-export destination) customs data from China to verify the

effects of trade liberalization for improving product quality.

Multiproduct firms are gradually becoming one of the focuses of heterogeneous

firm trade theory. There are significant differences between the export behavior and

performance of firms under the research framework of multiproduct firms compared