The first chapter of the thesis investigates the resilience of Chinese manufacturing importers to supply chain disruptions by exploiting the 2003 SARS epidemic as a natural experiment. I show both in theory and empirics that geographical diversification is crucial in building a resilient supply chain. I also find that reduction in trade costs induces firms to further diversify. Connectivity to the transportation network facilitates diversification in input sourcing and reduces the negative impact of SARS. Infrastructure is therefore useful not only in improving the efficiency of the economy, but also in increasing its resilience to shocks.
The second chapter studies how changes in factor endowments, technologies, and trade costs jointly determine structural adjustments, which are defined as changes in the distributions of production and exports. During 1999 to 2007, Chinese manufacturing production became more capital-intensive while exports did not. A structurally estimated Ricardian and Heckscher-Ohlin model with heterogeneous firms reconciles this seemingly puzzling pattern. Counterfactual simulations show that capital deepening made Chinese production more capital intensive, but technology changes that biased toward the labour intensive sectors and trade liberalizations provided a counterbalancing force.
The last chapter examines how firm heterogeneity shapes comparative advantage. Drawing on matched customs and firm-level data from China, we find that export participation, exported product scope and product mix, and firm mix within industries vary systematically with firms’ labour intensity. This is rationalized by a model in which firms from industries of comparative disadvantage face tougher competition in the export market. The competitive effect induces reallocation within and across firms and generates endogenous Ricardian comparative advantage, which dampens ex ante comparative advantage. Using sufficient statistics to measure and decompose comparative advantage, we find that the dampening mechanism is quantitatively important in shaping comparative advantage for a calibrated Chinese economy
