Research On Trade Cost, Market Structure And Enterprise Market Choice

The new develop of international trade theory aims to analyse enterprises trade、 investment pattern and transnational produces reorganization thoroughly. The main point of this paper is that trade cost of domestic market is even higher than export trade cost because of regional market segmentation and monoply of home market, many small enterprises are forced out to foreign markets which with lower trade cost, the monopoly level is aggravateded and monopoly heterogeneity increase after opening because of uncomplete market, resourse allocation distortion level is expanded. In Melitz(2003) model with enterprises heterogeneity and fixed trade cost, only those enterprises with higher productivity can sell products abroad and get profit. But it isn’t true in Chinese market. the empirical test shows the exporting enterprises’ productivity are not necessarily higher, and in some particular sector, most enterprises choose to export instead of trading in domestic market, there exist many pure exporters, but not as Melitz(2003) model said that all enterprises choose to sell in domestic market first,then export. There is an important hypothesis in Melitz(2003) model is that enterprisers need to undertake an extral fixed trade cost when exporting, only enterprisers with high productivity can overcome this cost, and get profits from exporting; enterprisers with lower productivity can only operate in domestic market; and open trade policy will strengthen competition,then enterprisers with lowest productivity will quit from market. This paper uses sales expense index of enterprises data to represent trade cost,and proves sales expense of enterprisers which only operate in domestic market is higher than export enterprisers because of higher fixed trade cost in home market, and it is the reason why the empirical test result of Chinese firm data doesn’t agree with the Melitz(2003) model. Different from developed country, Chinese home market and foreign market are segmented, tax sharing system and regional economy development needs lead to Regional Protectionism, which make regions also have trade barrier,so Chinese domestic market can’t be treated as a unified market.When entering a regional market, enterprise also needs to pay a fixed trade cost, then if the enterprise want to get the same market scale as the foreign market,it should undertake a higher fixed trade cost, so the trade cost in domestic market is even higher than exporting. When home market has enter barrier, only those enterprises with higher productivity or monopoly power can overcome reginal trade barriers of home market., and keep its monopoly position. After opening, many enterprises are forced out to overseas market, compete in international market. These enterprises even have competition advantage in international market because of Chinese abundant labor resource. Opening to international market makes monopoly heterogeneity between sectors and regions increase because of regional trade barrier and monopoly, the monopoly level of sector and region with high enter barrier will be aggravated, the level of resource distortion is enhanced. Only when the monopoly level is low, opening policy can have advantage to resource allocation, so domestic trade barrier elimination will raise the overall welfare.Theory part we extend Melitz(2003) model, set up a model to show whether regional market segmentation impacts enterprise market selection, including enterprise market selection model when domestic market has no reginal trade barrier and enterprise market selection model when domestic market has regional trade barrier. Empirical test part,we use Chinese firm data and logit model based on maximum likelihood method to estimate the reasons which affect Chinese manufacturing enterprises’market selection. The result shows the firms only operate in domestic market have higher productivity, and lower sales expense in foreign market significantly promotes exporting, the trade cost difference in different market has obvious impact on enterprises’market selection.Theory model and empirical test indicate that trade cost will affect enterprises’market selection. Next, we analyse the market structure and explain how it affect trade cost.We calculate regional trade barriers in home market and analyse market monopoly structure, reginal trade barriers and more serious monopoly in home market make trade cost in home market higher than foreign market. Then we set up a general equilibrium framework encompassing a large class of models with imperfect competition, study how the entire distribution of markups affects resource misallocation and welfare.Traditional theory thought monopoly would decrease after globalization, then trade can correct resource misallocation. But data shows that markups vary widely across industries and regions, their heterogeneity has increased overtime, and trade makes monopoly power heterogeneity increase. Because enter barriers are different in each industry, asymmetric exposure to international trade makes trade has different influence on each industry. The industry with low enter barriers will be traded more easily, so the makeups will decrease compared to the industries with high enter barriers, which means markups heterogeneity across industries will increase, and the extend of resource misallocation will expand. This suggests that partly trade opening policy will bring welfare loss, ensuring free entry is a crucial precondition to prevent adverse effects from asymmetric trade opening.This paper get two policy suggestion.first, There exist reginal trade barries and brings resource allocation. Our analysis shows that the main cause of exporting enterprise unwillingly turning to home market is there existing trade barries in home market. The home market channel building cost and other recessiveness cost is even higher than fixed exporting cost. The trade supposed occurring in home market is expelled to overseas market,and bring resource misallocation, tremendously lost efficiency. Secondly, eliminating monopolizing can correct the welfare loss that asymmetric trade liberalization brings about. That our new discovery is free trade aggravate monopoly because of home market area trade barriers. Enterprise with higher productivity and monopolizing predominant are able to overcome the home market area trade barriers, consolidate their monopolizing position, gain the great amount profit in home market,and prone to stay in the homeland market,therefore the key thing to expand domestic demand and attract enterprise to home market is to break monopoly, reduces the home market trade barriers.