Regional Trade Liberalization And Upgrading Of Export Products

China-ASEAN Free Trade Area(CAFTA)was established in 2010.As high-level cooperation that China achieved at this stage,it has the important significance that China further promotes regional trade liberalization.The purpose of this paper is to study the effects of tariff reduction caused by the China-ASEAN Free Trade Agreement on the export quality of Chinese manufacturing enterprises.Firstly,we extended the partial equilibrium theory model of Fan et al.(2015)simply,and the export destinations of different income levels and export tariffs are included in the trade model with heterogeneous firms.Based on the theoretical model,this paper proposes two assumptions:from the perspective of import,reduction of input import tariffs makes enterprises get greater chances to select intermediate goods of high quality and diversification to enhance product quality.Export qualities of the developing countries are generally lower than that of developed countries,so import competition effect of final goods’ import tariffs reduction on Chinese enterprises is very limited(competition between developing countries are more likely to be price competition but not quality competition).From the perspective of export,the effect of export tariffs reduction in developing countries is not dominated by the income growth effect of Bustos(2011),but that it reduce the overall quality of multi-product firm’s export products by increasing the proportion of its exports to developing countries(the preference of high quality product in developing countries is significantly lower than that in developed countries).Then,using the import and export data by the customs and micro data of industrial enterprises in 2003-2013,we analyze the effects import tariffs of intermediate goods and export tariffs on quality of export products.It is found that the reduction of import tariffs will significantly improve the export quality,and the reduction of export tariffs will inhibit the upgrading of the export quality.The influence of tariff on export quality is mainly reflected in those enterprises that imported intermediate products from ASEAN countries and exported products to ASEAN countries,and there are differences between different regions and different scale enterprises.Both the import tariffs of input products and export tariffs have a significant impact on the export quality of firms in the eastern region,while the impact on the enterprises in the central and western regions is not significant.Compared to small-scale enterprises,the two effects of tariffs on large-scale enterprises are stronger.In order to solve the endogeneity problem,this paper takes a variety of methods:(1)the 2-stage lagged difference equation model;(2)instrumental variables(IV)method;(3)the generalized moment estimation model(system GMM and differential GMM method).Excluding the endogenous factors caused by state-owned enterprises and other factors,sign and significance of the regression coefficients are not changed.Free trade agreements with both the developed countries and the developing countries are able to improve the quality of products by improving the structure of the use of intermediate goods.In the long run,China must find a balance between expanding the low income market to stabilize export growth and improving the quality of exports.