Labour Quality and Inward FDI: A Firm-level Empirical Study in China

This paper uses a large sample of Chinese cross-section firm-level data with comprehensive information about labour quality to investigate the relationship between labour quality and FDI distribution in China. Using parametric, IV-GMM and non-parametric techniques, the author finds that labour quality measured by education level plays an important role on deciding the distribution of FDI but labour quality measured by working certificates lose their significance. The author also finds that labour quality has a more significant impact on other foreign investments than HMT invested firms and the impacts of labour quality on FDI is strongly uneven across industries and provinces.education, foreign direct investment, labour quality

Exporting and Innovation: Theory and Firm-Level Evidence from the People's Republic of China

This paper investigates how exporting affects firm innovation. We embed innovation into a firm heterogeneity model with productivity, where in equilibrium the model shows that exporters invest more in innovation, such as research and development (R&D), than non-exporters. Using firm-level data from the People’s Republic of China (PRC), we apply the Levinsohn and Petrin (2003) method of estimating firm productivity and matching econometrics to control for endogeneity. The results show, on average, in contrast to non-exporters, exporters increase their R&D intensity by more than 5%, raise their R&D expenditure by more than 33%, and are 4% more likely to engage in R&D activity. In addition, we find exporting to have a smaller impact on innovation among firms that export processed goods, specifically, those in the electronics sectors, located in coastal provinces, and foreign-owned

The Nexus between Antidumping Petitions and Exports during the Global Financial Crisis: Evidence on the People’s Republic of China

This paper quantifies how the People’s Republic of China’s (PRC) export volume to its major trading partners during the global financial crisis affects the antidumping (AD) petitions filed by the trading partners against the PRC. Focusing on the AD petitions at the Harmonized System (HS) Code 8-digit level and the PRC’s exports at the HS 2-digit level, we construct three instrument variables at the same HS level for export volume. These instruments—documents required, time taken, and container charges incurred for goods traded across borders—represent trade costs obtained from the World Bank’s Doing Business Project. We find rising exports from the PRC lead to rising AD petitions against the country. Instrumental variable estimates indicate that a 1 percentage point rise in the PRC’s export volume raises the number of AD petitions against the country by about 0.3 percentage point, and the probability of receiving AD petitions by 3.6 %. These estimates are about 10 times larger than those found in ordinary least square regressions. Their quantitative significance underlines why it is important to consider the issue of export endogeneity in the estimation. Moreover, it highlights the failure of the current trade statistics to account for the true value-added of traded goods, and how this has particularly disadvantaged the PRC, given its position as the factory of the world

How continuing exporters set the price? Theory and empirical evidence from China

In this paper, we build a dynamic game model of quantity competition to explain the price difference between continuing exporters and exits. Continuing exports are forward looking and they may intentionally set a lower price in the export market at current stage to crowd out the competitors to maximize the overall expected profit in their total life period. Using a large sample of matched panel data of Chinese firms from firm-level production data and product-level trade data, we find that after controlling the most important determinants of export price as well as the firm-year-specific effects, continuing exporters charge a price 42.4%-54.0% lower than the price level charged by future exits in China

How Do Firms Respond to Political Tensions? The Heterogeneity of the Dalai Lama Effect on Trade

Little is known about the firm-level dynamics behind trade responses to political tensions. This article reinvestigates variation in the travel pattern of the 14th Dalai Lama to study how political tensions affect trading decisions of Chinese importers. Using monthly trade data from China Customs covering imports of machinery and transport equipment from 173 countries over the 2000-2006 period, our empirical results show a significant reduction of imports in response to foreign government members’ meetings with the Dalai Lama. In line with the idea that Chinese importers face a trade-off between bearing costs from suboptimal trade transactions and costs from not accommodating the government, this ‘Dalai Lama Effect’ operates at the intensive margin, i.e., via a decrease in the import volume per importer. Examining differential effects across types of firm ownership, we find that the observed effect is driven by state-owned enterprises (and foreign-invested firms) and not by private companies. Moreover, while direct importers temporarily reduce their trade with Dalai Lama-receiving countries, there is some evidence that trade intermediaries even benefit. Overall, we find the effects to be much more short-lived than previously thought

How continuing exporters set the price? Theory and empirical evidence from China

In this paper, we build a dynamic game model of quantity competition to explain the price difference between continuing exporters and exits. Continuing exports are forward looking and they may intentionally set a lower price in the export market at current stage to crowd out the competitors to maximize the overall expected profit in their total life period. Using a large sample of matched panel data of Chinese firms from firm-level production data and product-level trade data, we find that after controlling the most important determinants of export price as well as the firm-year-specific effects, continuing exporters charge a price 42.4%-54.0% lower than the price level charged by future exits in China

How Exporting Firms Respond to Technical Barriers to Trade?

This paper investigates how Technical Barriers to Trade (TBT) affect firm export performance. The implementation of the “Children-Resistance” act (CR act) in the EU offers an ideal quasi-natural experiment to identify the causal effect of TBTs on firm performance. Using data on Chinese firms that export cigarette lighters between 2004 and 2008, empirical results show that firms that export to the EU not only adjust their product quality to meet the requirements in the CR act, but also upgrade their product quality in other dimensions. However, both the export value and export volume to the EU decline. At the same time, less productive exporters are forced to exit from the EU market. In addition, while the effect of the CR act on export quality is significant only in the implementation year, its impact on firm-level export scale last longer even after its implementation, which is referred to as a dynamic impact. Lastly, Heterogeneous effect of TBT is also documented

Trade, income and the Baltic Dry Index

Does trade improve the income levels of the poor and less developed nations? Focusing on the Least Developed Countries (LDCs) designated by the United Nations, we construct a new measure of trade cost, based on the Baltic Dry Index (BDI), as an instrument for trade. The BDI reflects the cost of utilizing dry bulk carriers, which are specially designed vessels for transporting primary goods internationally, where these goods dominate the output and export sectors of the LDCs. We find that a 1% expansion in trade raises GDP per capita by approximately 0.5% on average. This estimate is much larger than previously found in the literature and its quantitative significance emphasizes the importance of trade towards the economic development of low income countries. © 2012 Elsevier B.V.Faqin Lin, Nicholas C.S. Si