Input Trade Liberalization And Firms’ Markup

After entering the WTO,China has actively carried out trade liberalization reform,drastically cut tariff and non-tariff barriers.It has promoted the development of China’s foreign trade rapidly,China has been the world’s largest exporter and the second largest importer of goods.However,comparing with the rapid growth of the total trade volume the performance of Chinese manufacturing firms are not high.After the current economic development has entered into a new normal,firm profitability has declined and economic growth has continued to slow down.In order to achieve sustainable economic development,it is urgent to stimulate the import potential.Therefore,the Report on the Work of the Government in 2016 has clearly stated that more active import policies should be implemented,especially those implemented to develop the import of core equipment parts,advanced technology and scarce raw materials.At present,China is entering a new round of input trade liberalization,and it is necessary to study in depth the effect of input trade liberalization on firms performance.Firms’ markup is an important indicator to measure the performance of firms,the markup level reflects the profitability and dynamic competitiveness of firms and the markup dispersion reflects resource allocation efficiency among firms.This paper studies the effect of input trade liberalization on firm performance from the perspective of markup.The research on this issue will not only help to clarify the source of firm performance,achieve sustainable economic development,but also help to assess the micro-effects of input trade liberalization and scientifically evaluate the gains and losses of China’s trade liberalization,so the study is very important and significant in its theoretical practical value.Based on the framework of heterogeneous firm trade theory,this paper studies effect and the influence mechanism of the input trade liberalization on the firms’markup,and under background of the input trade liberalization reform after China’s entry into WTO,this paper uses the data of Chinese industrial firms,Customs Trade and import tariff for empirical study.This paper consists of seven chapters.Chapter 1 is introduction,which introduces the background and significance of the research,research methods and research innovations.Chapter 2 is literature review,which mainly conduct a review of those literatures about the input trade liberalization and markup.Chapter 3 is a theoretical analysis of the effect of input trade liberalization on firms’ markup.Based on the Melitz and Ottaviano(2008)models,this chapter adds the import and using behavior of inputs in the production of firms,theoretically studies the effect and influence mechanism of input trade liberalization on firms’markup.In addition,product quality is further introduced to study the effect of product quality differentiation on the relationship between the input trade liberalization and firms’ markup under the same framework including input trade liberalization,the choice of optimal product quality and firms’ markup.Chapter 4 is an introduction of typical fact.It mainly calculates the three core variables of China’s input trade liberalization,firms’ markup and markup dispersion,and describes the facts according to the results.Chapter 5 is an empirical analysis of the effect of input trade liberalization on Chinese manufacturing firms’ markup.We build an econometric model of the effect.and mechanism of input trade liberalization on firms’markup,and an econometric model of product quality differentiation on the relationship between input trade liberalization and firms’ markup,using the 2000-2006 Chinese manufacturing firm data to have a comprehensive empirical test.Chapter 6 is a study on the effect of the input trade liberalization on Chinese manufacturing firms’ markup dispersion.This chapter firstly theoretically analyzes the influence mechanism of the input trade liberalization on markup dispersion and poses corresponding theoretical hypotheses.Then,we build an econometric model and have a comprehensive empirical test.Chapter 7 is the conclusions,policy implications and research prospects.Through the theoretical and empirical analysis,this paper draws the following main conclusion:Firstly,the input trade liberalization has significantly increased Chinese manufacturing firms’ markup.Marginal cost and product quality are important channels for the input trade liberalization to affect firms’ markup.The input trade liberalization has increased the firms’ markup through marginal cost reduction effect and quality upgrading effect.Second,product quality differentiation has strengthened the effect of input trade liberalization on firms’ markup,and affected the influence mechanism of input trade liberalization on markup.In homogeneous industries with less product quality differentiation,input trade liberalization only increases markup through marginal cost reduction effect;in heterogeneous industries with more product quality differentiation,input trade liberalization increases markup through marginal cost reduction effect and quality upgrading effect.So input trade liberalization has a greater effect on the increase markup of heterogeneous industries than those homogeneous industries.Thirdly,the input trade liberalization has significantly reduced the Chinese manufacturing firms’ markup dispersion and improved resource allocation efficiency.The markup changes of incumbent firms and low-markup firm exiting from the market are the channels for the input trade liberalization affect the markup dispersion.On the one hand,the input trade liberalization narrows the markup gap of incumbent firms through the change of markup and then reduces the markup dispersion;on the other hand,the input trade liberalization promotes the exit of low-markup firm andthen reduces the markup dispersion.