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

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 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

Labor Quality and Inward FDI: A Firm-Level Empirical Study in China

This paper investigates the relationship between labor quality and inward foreign direct investment (FDI) distribution in China using a large sample of Chinese cross-sectional, firm-level data, with comprehensive information about labor quality. The paper finds that labor quality measured by education level plays an important role in deciding the distribution of inward FDI, but labor quality measured by working certificates loses its significance using non-parametric matching techniques and the instrumental variables and generalized method of moments technique.The author also finds that labor quality has a more significant impact on other foreign investments than Hong Kong invested, Macau-invested and Taiwaninvested firms. The impacts of labor quality on inward FDI are found to be strongly uneven across industries and provinces. Therefore, China should pay more attention to the education of employees in all foreign-invested firms, and invest more in education to improve labor quality, which will help China to attract more FDI, especially technology-intensive FDI.Faqin Li

The Uneven Roles of FTAs: Selection Effect or “Learning” Effect?

Previous studies on the role of FTAs in promoting members’ international trade have usually focused on FTA premium, ignoring the difference between selection effects – trade developments before the formation of FTAs – and “learning” effects – trade growth after the formation of FTAs. This paper considers this difference, using a large bilateral trade panel comprising data covering more than 50 years from 178 countries. South–South FTAs and North–South FTAs are most related to the selection effect while North–North FTAs have a significant “learning” effect