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Trade liberalization induced profitability enhancement? The impact of intermediate input imports on firm profitability

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  • Fu, Qiuyao
  • Zhang, Teng
  • Li, Yunong

Abstract

Using the detailed data on production and transaction of Chinese manufacturing firms, we investigate how the input tariff liberalization affects firm profitability and explore the underlying channels of this effect. We find that input tariff reduction significantly increases firms’ profitability. Our finding is robust to a variety of specifications. We further find that the quality upgrading of imported intermediate inputs and the reduction of inventory costs are the main reasons for the profit-enhancing effect of input tariff reduction. Our study has important policy implications for the economic growth in the long run and the economic recovery during the epidemic of COVID-19.

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  • Fu, Qiuyao & Zhang, Teng & Li, Yunong, 2021. "Trade liberalization induced profitability enhancement? The impact of intermediate input imports on firm profitability," Journal of Asian Economics, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:asieco:v:75:y:2021:i:c:s1049007821000579
    DOI: 10.1016/j.asieco.2021.101328
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    Cited by:

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    3. Kimsanova, Barchynai & Herzfeld, Thomas, 2022. "Policy analysis with Melitz-type gravity model: Evidence from Kyrgyzstan," Journal of Asian Economics, Elsevier, vol. 80(C).
    4. Gnangnon, Sèna Kimm, 2023. "Duration of membership in the world trade organization and investment-oriented remittances inflows," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 258-277.

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    More about this item

    Keywords

    Input tariff reduction; Firm profitability; Intermediate inputs; Inventory;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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