WTO, Trade Liberalization, and Productivity in Chinese Manufacturing

Transcription

1 WTO, Trade Liberalization, and Productivity in Chinese Manufacturing Loren Brandt Jo Van Biesebroeck Yifan Zhang 5th Danish International Economics Workshop June 12, 2009

2 Motivation China s manufacturing sector is the largest in the world; in 2006, industry is the source of more than half of Chinese GDP Manufacturing has consistently been the source of nearly 90% of China s exports; and two-thirds of her imports China s rise as a trading nation (3 rd largest in 2006) is tied heavily to developments in the manufacturing sector

3 Source of China s growth & trade success? View #1 Undervalued exchange rate Low labor costs Lax environmental and labor standards Mobilization of resources (Young, 2003) View #2 Reforms of domestic and foreign sector have mattered Increased competition Forced firms to invest in capability-building, Facilitated transfer of managerial and technical know-how Role of productivity growth

4 Purpose of this paper Bridge some of the gap by looking at the impact of trade liberalizing reforms on enterprise productivity using unique data set Complemented by other work Case study of the automotive industry Analysis of firm dynamics in Chinese manufacturing sector Connect with new work on China s foreign trade, e.g. Feenstra and Wei (2008) related work on trade liberalization in other countries, e.g. Schor (2005), Amiti and Konings (2007), Lileeva and Trefler (2008)

5 China s Trade Liberalization Reforms begin well before entry into WTO Setting up of SEZs and EDTZ beginning in early 1980s that encouraged FDI Sharp reductions in tariffs and NTBs; tariff exemptions often extended Expansion of firms with direct trading rights Complemented by domestic reforms fostering entry and competition, and hardening of budget constraints

6 China s Trade Liberalization Foreign trade & FDI:

7 China s Trade Liberalization Tariff Summary:

8 China s Trade Liberalization Input & output Tariffs: Output tariffs Input tariffs Percent Year

9 China s Trade Liberalization Tariff distribution:

10 Data Firms Unbalanced panel of firms between All SOEs & non-soes with sales over 5 million RMB ( $650k) Sample aggregates to data in China Statistical Yearbook Approximately 150,000 obs. in 1998 to 250,000 in coverage relative to the census: 91% of gross value of industrial output 91% of net fixed assets 97% of exports 66% of employment

11 Data Firms extensive entry & exit Year Active firms Entry rate Exit rate , % , % 14.5% , % 19.8% , % 11.6% , % 11.5% , % 17.1% , % 15.0% , % 8.4% , %

12 Data Firms importance of ownership Number of firms Employment State 39.0% 21.0% 58.6% 32.5% Hybrid/collective 36.3% 6.3% 24.1% 4.8% Private 7.1% 51.2% 3.2% 29.7% HK, Macau, Taiwan 10.4% 10.3% 8.2% 16.1% Foreign 7.1% 11.2% 5.9% 16.9% Total 148, , m 63.4m

13 Data Trade & tariffs Inbound tariffs at 8-digit level Input-output tables All international trade transactions for digit HS By country of import and export Type of trade Construct input & output tariffs at 4-digit CIC Construct NTBs at 4-digit CIC Construct firm-specific output tariffs

14 Empirical model Follow others looking at links between liberalization and productivity, e.g. Pavcnik (2001), Trefler (2004), Lileeva and Trefler (2008), and many more Highlight the role of output and input tariffs e.g. Javorcik (2004), Amiti and Konings (2007) Fall in output tariffs source of increasing competitive pressures on firm Fall in input tariffs contributes to reduction in cost and possibly increase in variety of intermediates available to domestic firms Fall in input tariff lowers benefit of strong supply-chain

15 Empirical model Highlight heterogeneity of effects across firms E.g. Schor (2004), Ederington and McCalman (2007) A few unique Chinese sources of heterogeneity: Firms involved in export processing were able to import raw materials and intermediate goods duty free Foreign invested enterprises (FIEs) allowed to import capital goods duty free Right to import duty free extended to other domestic organizations; possibility of leakage of duty-free imports to other firms Up through late 1990s, SOEs protected

16 Empirical model logtfp add add ijt O = β Output-tariff i α add tariff i jt O β Output - tariff xw ijt ijt jt and tariff + β Input-tariff jt I xz jt jt + W ijt δ + Z jt γ + α + ε t t ijt Issues to deal with later: Impact through entry and exit (for now, compare firm-level to industry-level effects) Tariff reforms are likely to have a delayed effect: explore proper timing (lags and differences) Endogeneity of trade liberalization

17 Industry-level vs. firm-level a) Industry-level OLS estimation FE (industry) estimation Output tariff *** *** *** *** Input tariff *** b) Firm-level OLS estimation FE (firm) estimation Output tariff -0.26*** -0.19*** -0.04** -0.16*** Input tariff -0.30*** 0.81***

18 TFP estimation: index numbers vs. OP a) Index number OLS estimation FE (industry) estimation Output tariff -0.26*** -0.19*** -0.04** -0.16*** Input tariff -0.30*** 0.81*** b) Olley-Pakes OLS estimation FE (industry) estimation Output tariff -0.04** 0.83*** 0.20*** 0.65*** Input tariff -3.67*** -2.93***

19 Firm-specific tariffs vs. industryspecific effects a) Output tariffs (firm-level estimation) OLS estimation FE (industry) estimation IN OP IN OP Industry-level -0.26*** -0.04** -0.04** 0.20*** Firm-level -1.12*** 1.67*** -0.23*** b) Industry-specific impact of output tariff declines OLS estimation IN tariff tariff x foreign share tariff x export share tariff x median K/L Output-tariff -0.26*** Output-tariff *** *** *** 0.380***

20 More heterogeneity: productivity deciles Coefficients on Output Tariffs Coefficients on Input Tariffs Productivity Decile Productivity Decile

21 Yet more heterogeneity: prod. & ownership 1.5 Coefficients on Output Tariff State-owned Private FIE_Advanced Productivity Decile Coefficients on Input Tariffs State_owned Private FIE_Advanced Productivity Decile

22 Summary Observations First cut at the data suggest potentially important effects of tariff liberalization Only showed effects on TFP of continuing firms here; additional effects through entry and exit partly explain firm-level vs. industrylevel difference There is lots of heterogeneity, still need to look at regional differences and look for a model explanation Lingering measurement and econometric issues, e.g. check pre- and post-wto behavior and look at effects over longer time period To do: incorporate NTB behavior, role of FDI