Made in China; Created in China: Super Processors and Two-way Heterogeneity

30.04.2019 12:30 – 13:30

GENEVA TRADE AND DEVELOPMENT WORKSHOP (GTDW) / Abstract

In this paper, we show that there exists a special breed of firms that are active in both ordinary and processing exports. Contrary to the existing literature that describes processing firms as inferior, these mixed firms are superior to other firms in multiple dimensions, and are instrumental in driving China's export boom in 2000-2006. After establishing several stylized facts regarding these super processors, we build on Antras et al. (2017) and Bernard et al. (forthcoming) to develop a model of firms that are heterogeneous in their blueprint quality and manufacturing ability. In this model, firms optimize their production and sourcing behaviour, and this generates the ranking among different types of firms that we observe in the data. Then, based on the model's predictions, we evaluate China's adoption of online supervision for processing trade in 2000-2006, and find that promoting processing trade has positive externalities for downstream domestic firms. These spillovers are in the form of larger purchases from processing firms, higher probability to become a mixed exporter, and a rise in the number of trademarks.

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Graduate Institute
Maison de la Paix
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