TY - JOUR
T1 - On the relationship between quality and productivity
T2 - Evidence from China's accession to the WTO
AU - Fan, Haichao
AU - Li, Yao Amber
AU - Yeaple, Stephen R.
N1 - Funding Information:
We thank Editor Nina Pavcnik, two anonymous referees, Eric Verhoogen, Thierry Mayer, Jonathan Eaton, Michael Zheng Song, and the participants at the third HKUST Conference in International Economics (June 2015) and the 2014 HKU Inter-Campus Workshop On China Studies (December 2014). We gratefully acknowledge the financial support from the Natural Science Foundation of China (No. 71603155 ), the Shanghai Pujiang Program (No. 15PJC041 ), the Research Grants Council of Hong Kong, China (General Research Funds and Early Career Scheme GRF/ECS Project No. 646112 ), and the self-supporting project of Institute of World Economy at Fudan University. All remaining errors are our own.
Publisher Copyright:
© 2017 Elsevier B.V.
PY - 2018/1
Y1 - 2018/1
N2 - This paper presents an analysis of the effect of China's entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China's tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports toward high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks' neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading.
AB - This paper presents an analysis of the effect of China's entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China's tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports toward high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks' neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading.
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U2 - 10.1016/j.jinteco.2017.10.001
DO - 10.1016/j.jinteco.2017.10.001
M3 - Article
AN - SCOPUS:85033667959
SN - 0022-1996
VL - 110
SP - 28
EP - 49
JO - Journal of International Economics
JF - Journal of International Economics
ER -