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Input trade liberalization and import switching: Evidence from Chinese firms
Author(s) -
Tian Wei,
Yu Miaojie
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12410
Subject(s) - endogeneity , economics , international economics , scope (computer science) , liberalization , value (mathematics) , free trade , production (economics) , international trade , industrial organization , macroeconomics , econometrics , market economy , computer science , machine learning , programming language
This paper investigates how input liberalization affects firm import behavior. Using comprehensive production and trade data of Chinese firms, the paper shows that firms switch import sources from developing countries to developed countries as Chinese input tariffs fall. This finding is evident for import value and import scope. The observation holds after excluding the possible influence of reducing processing trade. The paper further demonstrates that the mechanism can be attributed to quality upgrading and innovation led by input cost reductions. The analysis handles the possible endogeneity problem, and the findings are robust and significant to different empirical methodologies and measurements.