How Does Imported Intermediate Products Affect Firms' Markup?

Since the reform and opening up,China's trade policy has set the tone of "import serves export",which has led to the unbalanced development of China's import and export trade.At present,China's economy is in the critical period of transformation from rapid growth to high-quality development.Encouraging the import of goods is important to make up the short spots of trade and development.It can also enrich the supply of domestic products and encourage competition in domestic market.This paper raises the following questions: how will imported intermediate goods affect the markup of local enterprises? What is the mechanism of its influence? In order to answer these questions,this paper conduct an empirical analysis to study the influence of import of intermediates using the combined data of Chinese Industrial Enterprises Database and the Customs database between 2001 and 2007.The result shows that the import of intermediate goods has a positive effect on the firm level markup.From the aspect of industry relevance,we find that both horizontal spillover and vertical spillover have a positive and significant impact on the markup rate.We also explore the results by comparing the difference in sort of intermediate goods,industry and ownership of firms.Empirical result shows that importing intermediate goods is an effective way to stimulate R&D input,which can raise firms' markup by reducing marginal cost.Based on our conclusion,expand import of high quality and technology intermediates and encourage firms to learn by import are useful to develop an effective import strategy and form Chinese firms' core competence.This article has made a little contribution to the research of trade gains.It provides a perspective for studying the development trend of industrial development under the international division of labor in the global value chain.