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Firm heterogeneity, market choice and productivity: Evidence from foreign‐owned enterprises in China
Author(s) -
Yang ChihHai,
Tsou MengWen
Publication year - 2018
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12724
Subject(s) - productivity , competition (biology) , total factor productivity , china , economics , market share , international trade , product (mathematics) , product market , business , international economics , market economy , incentive , marketing , economic growth , ecology , geometry , mathematics , political science , law , biology
This study examines the effects of firm heterogeneity on foreign‐owned enterprises’ ( FOE s) choices regarding serving the local market, undertaking assembly exports or undertaking ordinary exports. It also investigates the effects of serving these markets on productivity. Using a detailed firm–transaction level matched data set of FOE s in China covering 2000–07, the first‐stage estimation of propensity score matching ( PSM ) method reveals that less productive FOE s tend to undertake assembly exports, and this effect is particularly relevant to those located in inland regions. By contrast, more productive FOE s are likely to serve domestic markets or undertake ordinary exports. Other firm characteristics also exhibit diverse influences on market choices. Export‐oriented FOE s, particularly those undertaking assembly exports, experience lower productivity growth than that of local market‐oriented FOE s. This suggests that the effects of local market competition do result in substantial enhancement of the productivity of FOE s in China. This pattern is mainly exhibited by FOE s in inland regions, whereas FOE s undertaking ordinary exports in coastal regions might have somewhat higher total factor productivity ( TFP ) growth than their local market‐oriented counterparts. Among export‐oriented FOE s, exporting more product value—whether assembly or ordinary exports—has a positive influence on productivity.