Tariff Concession, Multi-product Firms And The Extensive Margin Of China’s Import

Based on Heterogeneous firm trade theory, this paper decomposes China’s import into dual margins using micro data from China’s Customs Database during2000-2006. Through the descriptive analysis, we found that there is obvious growth of the number of imported firms, products and markets in the observation period. China has achieved the goal of market diversification, and product structure also has changed significantly. But China still has huge surplus which is not balanced of foreign trade development. Research results also showed that the most import firms of China are multi-product firms; the ratio of the extensive margin in total imports was high after considering product-market dimension. Extensive margin of import growth was mainly from incumbent firms importing new products from incumbent markets. The most important dimension which impacts the extensive margin of China’s import from the major trading partners was Product dimension.Then, we build the model to investigate the impact of tariff Concession on the extensive margin of China’s import during2001-2006. We found that tariff Concession had a positive effect on the entry of new firms, incumbent firms importing new products, which shows that tariff Concession has impacts on the extensive margin of China’s import through firm and product dimension. Although Tariff Concession had a negative effect on incumbent firms entering new markets, tariff had a significant negative impact on those three dimensions. So tariff cuts still can help to increase the extensive margin of China’s import through the market dimension in the long run.To sum up, the lower tariff barriers can significantly promote the development of import trade. China should have a correct understanding of the characteristics of China’s import trade, make more effective tariff policy, promote the process of trade liberalization, and further promote the development of import trade. Therefore, this paper puts forward the following policy recommendations about how to promote the development of import trade. First, as Multi-product Firms is the main part of the import enterprises, government should pay attention to the development of Multi-product Firms when making import policy. Second, government should not only focus on the extensive margin among enterprises, but also on the interior of the enterprise. Third, China should continue to deepen reform of tariff system, formulate reasonable tariff and non-tariff barriers measures to reduce the import trade barriers and pursue more balanced foreign trade relations.