Empirical Studies On The Effects Of Trade Liberalization On Product Markup Of Multi-product Exporters

After the international financial crisis,changes of the situation at home and abroad have weakened China’s export competitive advantage based on low cost and low price,leading to the decline of China’s export competitiveness and the slowdown in export growth.After the financial crisis,the export growth in 2015 and 2016 experienced negative growth again;existing literature finds that the markup of Chinese exporters is significantly lower than that of non-exporters.Thus,the report of the 19 th National Congress of the Communist Party of China emphasizes that the development of new trade competitive advantages should be accelerated to raise export competitive advantage of Chinese exporters;at the same time,market access relaxation,import expansion and import tariffs should be continued.In 2016 and 2017,the growth rate of China’s import is significantly greater than that of export,indicating that the government intends to promote domestic economic development through trade liberalization.Does trade liberalization affect export competitive advantage? If so,what is the possible channel? In addition,the research on the relationship between trade liberalization and export competitive advantage is mostly based on the hypothesis of single-product firms.This is seriously inconsistent with the fact that multi-product exporters prevail in international trade and will conceal the within-firm resource allocation behind the export product adjustment.Therefore,this paper studies whether trade liberalization has different effects on different products’ competitive advantages from the perspective of multi-product exporters.If so,what is the possible mechanism? What is the effect of trade liberalization on different products’ resources allocation within multi-product firms? To answer these questions,seeking efficient ways of raising export competitive advantages from the perspective of import trade liberalization has profound implications.Markup is defined as the ratio of price to marginal cost,which can reflect the pricing ability and market power of a firm and also can be used to evaluate trade gains.This paper studies export competitive advantage from the perspective of export markup.In the context of the import tariff decrease after China’s entry into WTO,this paper incorporates the multi-product firm and variable markup into the theoretical analysis framework of heterogeneous firms and studies the mechanism and effect of trade liberalization on the level and distribution dispersion of multi-product exporters’ markup.Firstly,this paper analyzes the characteristics and export dynamics of Chinese multi-product exporters.In 2000 and 2011,the amount and export volume of Chinese multi-product exporters reaches 70% and 80% respectively and dominates China’s export overwhelmingly.Further,this paper groups firms,firms’ products and firms’ destinations into six exclusive categories: continuing,exiting,entering,one-time,occasional and switcher.Intensive margin is computed from continuing growth,while the net growth of all the rest is defined as extensive margin.The results of multi-product exporters’ amount distribution characteristics and export growth movements show that the continuing products and continuing destination of continuing firms are the major driving forces for China’s export growth,but continuing firms also present extensive product and destination switcher behavior,even if their contribution to export growth is relatively small.These results lay factual foundation for the following study.Secondly,with reference to De Loecker et al.(2016),this paper measures export markup of Chinese multi-product exporters,resolves the problem of unobservable factor amount at the product level and analyzes the stylized facts of multi-product exporters’ markup.It is found that from 2000 to 2006,the multi-product exporters’ markup showed upward trend overall;in terms of the dimension of product ladder,more of which means more distant from the core product,the markup decreases as the product ladder increases,in other words,the markup of core products is higher than that of non-core products;the markup of products near the front increases more than that of products at the back,namely,the markup of core products increases more than that of non-core products during the sample period.Based on these facts,this paper studies the mechanism and effect of the input trade liberalization on multi-product exporters’ markup from the channels of marginal cost downward effect and quality upgrading effect.The empirical results show that the input trade liberalization raises overall multi-product exporters’ markup both through marginal cost downward effect and quality upgrading effect.The different effects of quality upgrading on core and non-core products contribute to the fact that the markup of core products increases more than that of non-core products.Thirdly,this paper focuses on the mechanism and effect of import competition induced by output tariff reduction on export markup.Existing literature finds that import competition has price restrictive effect and cost downward effect on d omestic firms’ markup.Based on the analysis of price effect and cost effect induced by import competition,this paper further clarifies that the import competition also affects markup through quality effect and identifies cost effect and quality effect of import competition by using the evident difference in quality upgrading probability of homogeneous and heterogeneous products.The results show that import competition significantly raises export markup,but only raises heterogeneous products’ markup and has no significant effect on homogeneous products’ markup when product differentiation is considered.Besides,price effect of import competition on export markup is insignificant but cost effect and quality effect are significant,especially by improving the quality of heterogeneous products and reducing the marginal cost of homogeneous products.Next,this paper studies the different mechanism and effect of output trade liberalization on multi-product exporters’ markup in respect of product ladders.Eckel et al.(2015)shows that multi-product firms adopt quality competition or cost competition strategy for core product.This paper’s empirical study finds that Chinese multi-product exporters mainly adopt quality competition for core product strategy,which embodies investing more in core products’ quality upgrading and that core product quality is greater than non-core product quality.Combined with the quality upgrading effect of final goods trade liberalization on multi-product exporters’ markup and quality competition strategy for core product,this paper finds that final goods trade liberalization has different mechanism and effect on the quality and markup of core and non-core products.Finally,this paper studies the mechanism and effect of trade liber alization on resource allocation from the perspective of markup dispersion.Previous literature points out that the dispersion of markup among firms and products reflects the resource allocation efficiency(Robinson,1969;Lerner,1934).This paper measure s the dispersion of markup at industry,HS6 product and firm level by using the Theil index,and analysis the characteristics of markup distribution at different levels and examines the relationship between trade liberalization and markup distribution.The results show that trade liberalization overall reduces markup dispersion at different levels and improves resource misallocation by reducing the dispersion of price distribution and marginal cost distribution of each level at the same time.Besides,input and output trade liberalization has different mechanism and effect on markup disparity at industry level.