Essays in International Trade

Author:

Bai, Xue

Graduate Program:

Economics

Degree:

Doctor of Philosophy

Document Type:

Dissertation

Date of Defense:

June 17, 2014

Committee Members:

Kala Krishna, Dissertation Advisor/Co-Advisor
Kala Krishna, Committee Chair/Co-Chair
Mark John Roberts, Committee Member
James R. Tybout, Committee Member
Russell Wade Cooper, Committee Member
John Raymond Moran Jr., Committee Member

Keywords:

China
direct trading rights
export mode
dynamic
intermediary
learning-by-exporting
prepare to export
self-selection

Abstract:

Chapter 1: Self-inflicted Wounds? China's Restrictions on Direct Trading (with Kala Krishna) In this paper we discuss the background of China's restrictive policy on direct trading rights and document the changes made in the requirements for domestically-owned Chinese firms to have direct trading rights. We first show that these restrictions (and hence their removal) had differential coverage across industry, location and time. By looking at the impact of removing these restrictions on a variety of variables, we argue that removal of this restrictive policy was indeed an important force affecting exports. Exploiting information on eligibility for direct trading rights at the firm-level, we evaluate the effect of becoming eligible for direct trading on firm behavior and performance. We find positive and significant effects of gaining eligibility on probability of exporting, export values and total revenue. Moreover, most of the effects come from former indirect exporters. This suggests that former indirect exporters who may have been the most constrained firms who gained the most from the liberalization. We also find that gaining direct trading rights tomorrow has advance effect on firms' probability of exporting today suggesting firms are more likely to export indirectly in anticipation of becoming eligible tomorrow. However, these exports are small so that becoming eligible today raises export value and revenues tomorrow, not yesterday so that eligibility operates on these variable with a lag. Chapter 2: How You Export Matters: Export Mode, Learning, and Productivity in China (with Kala Krishna and Hong Ma) Firms can choose how they export: directly or through intermediaries. What are the costs and benefits of such choices? Firms may choose to trade directly, even if this is more costly in the short run, if doing so results in better future outcomes. A policy pursued by China gives us a unique chance to look at such trade-offs in the real world. Before China's accession to the WTO, a large share of domestic Chinese firms were not allowed to export directly, only through intermediaries. In this paper we develop and estimate a dynamic discrete choice model where firms choose their export mode. We recover not only the sunk and fixed costs of exporting according to mode, but also the evolution of productivity and demand under different export modes. We find that the evolution of both demand and productivity is more favorable under direct exporting. On average, starting direct exporting requires significantly higher start-up costs than starting indirect exporting. It is also more costly to remain a direct exporter than to remain an indirect one. Moreover, climbing the export ladder by starting off as an indirect exporter and then transitioning into direct exporting is cheaper than exporting directly to begin with. Our counterfactual experiment suggests that this policy reduced Chinese export growth considerably. Exports would have been $30$ percent less and the export participation rate would have been $37$ percent lower had there been no liberalization of trading rights. In addition, we compare the effects of different trade policies, namely export subsidies and subsidies on export costs. For export subsidies, it is better to target direct exporters over indirect ones, both for increasing the number of exporters and in terms of exports per dollar expended. However for cost subsidies, the opposite is true. Chapter 3: Productivity and Exporting: Selection, Learning by Exporting and Preparing to Export (with Bernardo Diaz de Astarloa and Kala Krishna) Much of the trade literature has focused on the links between productivity and exporting. Three channels have been emphasized. First, productivity causes exporting, so that there is selection into exporting by more productive firms. Second, that exporting generates productivity growth through, for example, learning-by-exporting. Third, that firms make choices that make them more productive in preparation to export. In this paper, we study these links and try to entangle this export-productivity correlation. Utilizing unique features of the Chinese data, we focus on the entire evolution of firms' productivity and decompose productivity growth before and after entering foreign markets. We show that patterns of Chinese exporters are consistent with all three hypotheses. First, exporters are more productive than non-exporters, which is consistent with selection. Future exporters' productivity grow steadily both before and after entry. A larger share of this growth of successful exporters happened after the entry, while productivity growth slows down after exiting for unsuccessful exporters. This is consistent with the learning-by-exporting theory and suggest possible active preparation to export. Furthermore, new exporters increase sales expenditures and earn higher revenue from new products than other firms before they start exporting. This indicates that firms actively invest in marketing structures and product upgrading to prepare for exporting in both demand and cost sides. This is true when compared to both non-exporters and continuous exporters. In addition, China's gradual and anticipated liberalization of direct trading rights help us identify further firm actions in preparing to export. In particular, we find evidence showing that Chinese firms undertook investment with the specific purpose of acquiring direct trading rights.