| Since entering WTO,Chinese firms have been embedded in the global value chain relying on labor costs and other cost advantages,and have achieved the "Chinese miracle" with the rapid growth of economy through the export oriented development mode.From the perspective of export quantity or "two margins",most of the previous literatures explain the theoretical mechanism of China's export growth and explain the reasons for the export of Chinese miracle.With the significant slowing down of China's export growth and the necessity of domestic industrial transformation and upgrading,the recent literature has shifted from "quantity" to "quality",and the performance of export firms have been studied from the perspective of productivity,technology complexity and export quality.But from the perspective of profitability,the literature about earnings and market power of export firms is relatively rare.The level of firms' profitability can be characterized by markups.This paper aims to build a theoretical framework to analyze the decision mechanism,influencing factors and dynamic evolution of Chinese export firms' markups.This is the marginal expansion of the empirical research in existing international economics and the reality research based on "Chinese fact".The traditional theory is that the markups of export firms are higher than that of non-export firms.The major finding of this paper is that China's export firms are in the "lower markup trap".That is the markups of export firms are lower than that of the non-export firms in same industry.The findings confirm that Chinese firms have not significantly raised their earnings through exports,and exports are mainly increased by quantity rather than profit.On this basis,through the extension of the benchmark model,this paper analyzes the mechanism of "lower markup trap" in Chinese export firms,the theoretical study shows that the firms entering the export market face "pro-competitive effects" and "quality enhancing effects".Chinese firms with low productivity determines the level of their lower product quality embedded in the international market.The "pro-competitive effects" are larger than the "quality enhancing effects",which obtain lower markups.Besides static analysis,this paper deeply studys the main channel of cracking Chinese export firms' "lower markup trap" by the dynamic extension of benchmark model from perspective of import intermediates,product innovation and export mode transformation.These variables may be important channels to promote the Chinese export firms in transition to "high quality".Finally,based on theoretical analysis and empirical research,this paper puts forward recommendations to promote Chinese export firms transfering to the "quality imports and quality exports,good quality and good price".It has important significance for the development of new advantages in China's foreign trade competition,driven by shift from trading power to trade power.The main conclusions of this paper are as follows:Through the establishment of the extended MO model as benchmark model,theoretical model shows that the export firms' markups are not a linear relationship with the productivity.There is a"U-shape" curve on productivity,namely the less productive export firms' markups are lower than the corresponding non-export firms.Only when productivity exceeds the threshold,the firms'markups will show a positive correlation with productivity.Furthermore,the influence of product quality is introduced,and the determinant factor of the markups is the best choice of product quality.The study found that the export firms face "pro-competitive effects" and "quality enhancing effects","quality enhancing effects" have a positive threshold Only when the firms cross it,they will select the "high quality,high price,high markups" export mode.When the export firms' productivity is lower than the treshold value,they will choose the "low quality,low price,low markup" export mode.That causes "lower markup trap" in Chinese export firms.The empirical results show that only about 25%of Chinese export firms exceed this threshold,that is,most export firms are in the"lower markup trap",which is the characterization and test from two dimensions of theory and empirical analysis in the benchmark model.The benchmark model analyses the "lower markup traq" with full sample data,but neglects the possible subsample heterogeneity.Ahn et al.(2011)points out that China has a wide range of trade intermediaries,and a large number of firms export through indirect trade.By extending the benchmark model,this paper points out that the firms' markups are not only determined by productivity,but also affected by the demand shock effect.The greater demand shock is,the lower level of export firms' markups are.The dynamic expansion model introducing export mode shows that export firms are facing "learning by exporting effects" and "demand shock adjusting effects".Compared with the indirect export firms,direct export firms have more significantly positive"learning by exporting effects" and "demand shock adjusting effects".When fecing export market competition,direct export firms' markups are significantly improved,while the indirect export firms'markups are significantly weakened.It is because of the different trade mode that cause the Chinese export firms'"lower markup trap".On the basis of static models,this paper tries to answer the important channel to push Chinese export firms crossing the "lowesr markup trap" by studying the dynamics of firm-level markups.One possible channel is through import intermediates.According to the new growth theory,inport intermediate can improve firm-level productivity through horizontal and vertical effects.This paper focuses on the horizontal effect of more import intermediates.The result of theoretical prediction is that the markups of China's import intermediate firms are significantly lower than that of non-import intermediates.This is the second important academic proposition of this paper,"the mystery of lower markups".Through empirical analysis,this paper finds that embedding the global value chain through processing trade can not improve the competitiveness of firms,while the markups of import intermediates by ordinary trade are significantly improved.This paper explains the above problems by incorporating the heterogeneous firm theory of the global value chain.A potential possibility is that Chinese firms(especially private domestic firms)faced with financial constraints,more inclined to the processing trade of import intermediates.The trade profit is shared according to firms' pre cost burden.Due to less pre cost input,firms with tight financial constraints lack of bargaining power in final profit,so their markups are not significantly improved.This paper examines the mechanism through empirical research,and puts forward some policy suggestions for the transformation and upgrading of processing trade.In addition to improving the markups through import intermediates,product innovation is also one of the important ways to dynamically improve the firm-level markups.This paper will simplify the firms' product innovation for quality innovation in vertical level,the theoretical results show that firm-level product innovation can affect their quality,which causes their export products with different markups.But the product quality and the firm-level markups are not monotonous.It presents "U-shape" curve relationship.Only when product quality increases to a certain extent,markups of export firms will be improved by product innovation.The empirical results show that,generally product innovation improves the markups of export firms,a significantly positive effect exists in each subsample,which confirms that product innovation is a crucial path for export firms dynamically improving their markups.Innovation driven strategy is the only way which must be passed from the empirical view to improve the competitiveness of Chinese export firms. |
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