Product Switching By Chinese Multiple-product Exporters

Since the emergence of so-called “New-new” trade theory at the beginning of this century,theoretical research in international trade has increasingly emphasized firm-level decisions.Melitz(2003)develops a heterogeneous framework in which average industry productivity rises as low-productivity firms exit and high-productivity firms expand to enter export market.However,most models of heterogeneous firms and trade assume that each firm produces one variety,which is challenged by real world that many firms produce and export multiple products.In fact,Meltiz's(2003)single-product,heterogeneous-firm model of trade may understate trade welfare and the extensive margin of products.Most recently,theoretical research has begun to explore models in which heterogeneous firms produce differentiated products.These models find that firm's behavior of dropping marginal products to concentrate on “core competencies” will play an important role on the firm itself,the industry and even the overall economy.Therefore,product switching by multiple-product firms is an important avenue for future research on heterogeneous-firm model of trade.Based on multi-product,heterogeneous-firm trade model and China's firm-level data,this dissertation tries to comprehensively and systematically examine export-product switching by exporting firms in China.This dissertation concentrates on the following four research perspectives: the macro and micro effect of export-product switching;the impact of trade liberalization on export-product switching;the age dependence of export-product switching and the reasons for export-product switching.The detailed research topics and methods are as follows: Chapter 1 is introduction,stating the significance and background of this research,research topics and methods applied,as well as the innovation.Chapter 2 is literature review,in which recent development of theoretical and empirical research on multi-product,heterogeneous-firm model of trade is reviewed and summarized.Based on Chinese industrial enterprises dataset and Chinese customs import and export dataset,Chapter 3 characterizes some stylized facts of multi-product exporters in China.The remaining four chapters are core parts of this dissertation.Chapter 4 investigates the macro and micro effect of product switching.Firstly,we decompose the growth in both the aggregate and manufacturing value of export to reveal the contribution of export-product entry and exit to export growth;secondly,based on the “Resource Reallocation Effect” and firm-level dataset that covers all manufacturing exporters in China from 2000 to 2006,we conduct an empirical research on how export-product switching affects firm's productivity.Chapter 5 uses the China and ASEAN Free Trade Area(CAFTA)as a quasi-natural experiment and applies a “differences-in-differences”(DID)method to examine the impact of trade liberalization on the switching behavior of exporting products.In Chapter 6,we analyze the age dependence of product switching.Firstly,we use line chart to demonstrate how the share of added and to-be-dropped products varies with the duration of a firm's export experience,then develop a model of learning and discuss how product switching behavior will respond to a demand-shock signal,and finally we conduct a deep empirical study by using firm-level micro data covering all Chinese manufacturing exporters from 2000 to 2006 to show the influence of export experience on the intensity of product adding and dropping.In Chapter 7,we investigate the problem that why exporters switch their exporting products.Qualitatively,we use scatter diagrams to plot the relationship between product add rate and product drop rate and prove that demand shock at product level will result in a reallocation of resources from “cold” products to “hot” products.Quantitatively,we use Logit model to examine the influence factors of product switching at firm-level and firm-product level.Chapter 8 summarizes main conclusions of this dissertation,puts forward some policy implications and points out the future research directions.Main conclusions are as follows:1.Multiple-product exporters dominate the exporting market in China,as they do a better job than single-product exporters with regards to output,employment and productivity.The switching of exporting products is frequent and pervasive among Chinese exporters.Changes in exporting product mix are more common among multiple-product exporters than single-product exporters.Enterprises in processing trade and foreign enterprises are less likely to change their exporting products.2.From macro-level perspective,the contribution of product switching to export growth is non-negligible.The changes in export stemming from product entry and exit are much more than that from firm entry and exit.From micro-level perspective,net product dropping declines firm productivity,while “creative destruction” like both adding and dropping products will lead to a significant increase in firm productivity.The switch of exporting products by firms in processing trade,which are “order-oriented”,hinders the improvement of productivity,while “market-oriented” general trading firms promote their productivity by changing product mix to adapt to changes in foreign market.3.Trade liberalization significantly inhibits exporting products from both entering and exiting firms.On one hand,trade liberalization gives exporters the opportunity to learn advanced production method and management skill to improve existing process and technologies.This “learning effect” increases the survival of existing products and hinders them from exiting;on the other hand,trade liberalization brings more fierce competition,and this “competition effect” enables firms to reallocate resources to their “core” products,as a result of which the behavior of adding new product slows down.4.The share of added products continues to decline in export age,which verifies the prediction of our model that "mature" firms export products more stably.However,the share of to-be-dropped products appears to arise in export age,which is in contrary to the proposition of our model.This finding might be interpreted by the dynamics around a firm's exit time when to-be-exitors are rapidly shrinking their product scope in the years immediately preceding the exit.5.Product-level evidence shows that stochastic shocks(demand shock and supply shock)do explain the reallocation of resources from “cold” products to “hot” products among exporters in China.Firm-level evidence shows that,firms with smaller export value are more likely to drop products to cope with shocks;firms with wider product scope and longer duration of export are more likely to drop products considering the higher product substitutability and greater capability to reallocate their resources of these firms.Compared with other exporters in the same market,a firm will stop exporting products with smaller value and shorter tenure,which means exporters often give up marginal products to keep “core competencies”.