Research On Impact Of Trade Costs On China's Export Product Diversity

Export product diversity,one of the core elements affecting the transformation and upgrading of China's foreign trade and its economic sustainable growth,involves not only the horizontal diversity in varieties of export products but the vertical in quality improvement.It also plays a positive role in a nation's economic growth,improving its terms of trade and refraining volatility of outputs.Ever since the reform and opening,China's foreign trade has experienced over 30 years' swift development.However,with the increases in domestic labor and material costs as well as changes in economic conditions home and abroad,China's original trade model of competing with our low prices is no longer sustainable,which makes the study of export product diversity necessary and urgent.Different from current literatures which almost all focus on horizontal diversity,the paper looks at product diversity both horizontally and vertically,and studies the impact of trade costs on export product diversity both theoretically and empirically.Based on the enterprise heterogeneity model by Melitz(2003)and Kancs(2007),the paper first establishes a theoretical framework to study how trade costs affect export product diversity.Then,indexes are introduced to depict,from three perspectives—time,industry and international comparison—the characteristic features of China's export product diversity;and nested Logit selection model is applied to show its vertical status quo from three levels of the aggregate,sectors and manufacturing industries,which is compared internationally.With the improved Novy(2013)model,the paper measures the trade costs between China and sample nations (regions) from the same three levels of the aggregate,sectors and manufacturing industries.And finally,an empirical study is conducted to test the impact of trade costs on product diversity based on trade data between China and sample nations (regions).The main conclusions of the paper include: 1)Trade costs measured in three levels are all descending but at different rates.From the perspective of sectors,trade costs of agriculture produces are higher than those of manufacturing sector,and among sample nations (regions),trade costs with Japan and Korea are lower than those with European nations.2)From the aggregate level,China's horizontal export product diversity shows a small decline with the export growth implemented through intensive margin growth.Inside the manufacturing sector,export product diversity shows great industry heterogeneity.Compared internationally and horizontally,China's horizontal export product diversity is higher than most of sample nations (regions).3)After applying nested Logit selection model,it is found that China's vertical export product diversity is ascending in all three levels but still lower than those of sample nations (regions).4)Via the threshold productivity effect,decline in trade costs significantly improves the horizontal export product diversity and as compared to variable trade costs,fixed trade costs play a more significant role.Trade costs influence the vertical export product diversity through the effects resources allocation,technology progress and competition.Different constitution of trade costs brings different effect on export product diversity: trade facilitation significantly improves the diversity,while tariff and distribution cost significantly impedes the diversity,distance shows no significant effect and the effects from exchange rate,execution cost and free trade agreements remain uncertain.Finally recommendations are proposed in an expectation to help lower trade costs and promote the micro mechanism that improves export product diversity so as to realize the transformation and upgrading of China's foreign trade and economic sustainable growth.