Firm exporting behaviour and trade policy in China

Abstract

This thesis analyses firm exporting behaviour and trade policy in China. China’s astonishing export growth is largely driven by pure exporting behaviour and low priced goods. Therefore this thesis focuses on the firm pure exporting behaviour and firm quality specialization between a poor country and a rich country. Moreover, this thesis explores the roles of trade policy in Chinese trade. A commonly used and frequently adjusted policy of value-added tax rebates (VATRs) for exporters is analysed. Chapter 2 introduces heterogeneity in productivity, entry cost and demand in both domestic and foreign markets to explain pure exporters. Pure exporters face lower demandadjusted foreign entry cost than demand-adjusted domestic entry cost. The presence of pure exporters makes the average productivity of exporters be lower or higher than nonexporters. The pure exporting products are analysed under a multiproduct firm framework in chapter 3. The study develops a general equilibrium model which allows for heterogeneity in productivity and fixed export cost across products. We find high productive firms can manage more products in export than in domestic market due to pure exporting products. Both chapters investigate the effects of trade and trade liberalization on pure exporting behaviour. Chapter 4 analyses the quality specialization pattern between a poor and a rich country in international trade. In the model, there is one to one relationship between income of consumers and quality they buy. The model shows a home market effect on quality specialization. When a poor country trades with a rich country, low (high) qualities are completely specialized in the poor (rich) country, while medium qualities are incompletely specialized, i.e. produced by both countries and exported to each other. Furthermore, this chapter also provides some empirical evidence. Chapter 5 assesses the trade policy of VATRs in China. Based on the correction for potential endogeneity of VATR adjustments, the estimation suggests one percentage point increase of VATR does not affect export price significantly while increasing export quantity by 1.15%. 1.43% more firms are induced to export the adjusted product while the number of destinations the product exported is raised by 0.77%. Furthermore, firm welfare measured as the net profit is increased by 2.15%, which translates into $2.14 in revenue for a $1 additional rebate from government