IDEAS home Printed from https://ideas.repec.org/a/eee/asieco/v90y2024ics1049007823001100.html
   My bibliography  Save this article

Do export tax rebates promote firm upgrading? Evidences from labor-intensive firms in China

Author

Listed:
  • Liang, Yue
  • Lu, Wencong

Abstract

With increasing the low-cost competition in international market, firm upgrading especially for Chinese labor-intensive firms is vital to strengthening their export competitiveness. Using a panel data of Chinese labor-intensive firms for 2001–2013, this paper explores whether export tax rebates (ETR) promote firm upgrading measured by technological sophistication and product quality. Results show that a positively significant effect of ETR on firm upgrading. An increase in ETR rates by 10 % upgrades technological sophistication by 2.3 % and product quality by 2.1 %. Moreover, there exists an inverse-U shaped relationship between the rebate rate and firm upgrading, and the turning point occurs when the rate is at 0.15 for technological sophistication and at 0.13 for product quality. Further mechanism analysis reveals that the internal knowledge creation and international knowledge transfer are two parallel pathways linking ETR and firm upgrading. The effect of ETR on technological sophistication is carried mainly by internal knowledge creation, while international knowledge transfer is more important for upgrading product quality. However, the ETR effects vary across firms with different characters.

Suggested Citation

  • Liang, Yue & Lu, Wencong, 2024. "Do export tax rebates promote firm upgrading? Evidences from labor-intensive firms in China," Journal of Asian Economics, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:asieco:v:90:y:2024:i:c:s1049007823001100
    DOI: 10.1016/j.asieco.2023.101690
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1049007823001100
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.asieco.2023.101690?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Elena Huergo & Lourdes Moreno, 2011. "Does history matter for the relationship between R&D, innovation, and productivity?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 20(5), pages 1335-1368, October.
    2. Raphael Auer & Thomas Chaney, 2009. "Exchange Rate Pass‐Through in a Competitive Model of Pricing‐to‐Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 151-175, February.
    3. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 541-585.
    4. repec:hal:spmain:info:hdl:2441/651f8db8eu86bpej8g9cb795ud is not listed on IDEAS
    5. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    6. Ahn, JaeBin & Khandelwal, Amit K. & Wei, Shang-Jin, 2011. "The role of intermediaries in facilitating trade," Journal of International Economics, Elsevier, vol. 84(1), pages 73-85, May.
    7. Rita Almeida & Ana Margarida Fernandes, 2008. "Openness and Technological Innovations in Developing Countries: Evidence from Firm-Level Surveys," Journal of Development Studies, Taylor & Francis Journals, vol. 44(5), pages 701-727.
    8. Wolfgang Ulaga, 2003. "Capturing value creation in business relationships: A customer perspective," Post-Print hal-00484963, HAL.
    9. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    10. Thomas Kemeny, 2011. "Are international technology gaps growing or shrinking in the age of globalization?," Journal of Economic Geography, Oxford University Press, vol. 11(1), pages 1-35, January.
    11. Dario Guarascio & Mario Pianta & Francesco Bogliacino, 2017. "Export, R&D and New Products: A Model and a Test on European Industries," Economic Complexity and Evolution, in: Andreas Pyka & Uwe Cantner (ed.), Foundations of Economic Change, pages 393-432, Springer.
    12. R. Kaplinsky, 2000. "Globalisation and Unequalisation: What Can Be Learned from Value Chain Analysis?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(2), pages 117-146.
    13. Giuliani, Elisa & Pietrobelli, Carlo & Rabellotti, Roberta, 2005. "Upgrading in Global Value Chains: Lessons from Latin American Clusters," World Development, Elsevier, vol. 33(4), pages 549-573, April.
    14. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    15. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    16. Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Anthony Bartzokas & Sunil Mani (ed.), Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2, Edward Elgar Publishing.
    17. Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2012. "Do financing constraints matter for R&D?," European Economic Review, Elsevier, vol. 56(8), pages 1512-1529.
    18. Fleisher, Belton & Li, Haizheng & Zhao, Min Qiang, 2010. "Human capital, economic growth, and regional inequality in China," Journal of Development Economics, Elsevier, vol. 92(2), pages 215-231, July.
    19. Bernhard Dachs & Bernd Ebersberger & Hans Lööf, 2008. "The innovative performance of foreign-owned enterprises in small open economies," The Journal of Technology Transfer, Springer, vol. 33(4), pages 393-406, August.
    20. Fu, Xiaolan & Gong, Yundan, 2011. "Indigenous and Foreign Innovation Efforts and Drivers of Technological Upgrading: Evidence from China," World Development, Elsevier, vol. 39(7), pages 1213-1225, July.
    21. Zou, Jingxian & Shen, Guangjun & Gong, Yaxian, 2019. "The effect of value-added tax on leverage: Evidence from China’s value-added tax reform," China Economic Review, Elsevier, vol. 54(C), pages 135-146.
    22. Zhang, Dongyang, 2019. "Can export tax rebate alleviate financial constraint to increase firm productivity? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 529-540.
    23. Stephan Huber, 2018. "Product Sophistication and Spillovers from Foreign Direct Investment," Contributions to Economics, in: Product Characteristics in International Economics, chapter 0, pages 51-90, Springer.
    24. Zhu, Shujin & Fu, Xiaolan, 2013. "Drivers of Export Upgrading," World Development, Elsevier, vol. 51(C), pages 221-233.
    25. repec:dau:papers:123456789/13784 is not listed on IDEAS
    26. John Humphrey & Hubert Schmitz, 2002. "How does insertion in global value chains affect upgrading in industrial clusters?," Regional Studies, Taylor & Francis Journals, vol. 36(9), pages 1017-1027.
    27. Chandra, Piyush & Long, Cheryl, 2013. "VAT rebates and export performance in China: Firm-level evidence," Journal of Public Economics, Elsevier, vol. 102(C), pages 13-22.
    28. Sajid Anwar & Beibei Hu & Yuying Jin & Kai Wang, 2019. "China's export tax rebate and the duration of firm export spells," Review of Development Economics, Wiley Blackwell, vol. 23(1), pages 376-394, February.
    29. Keun Lee & Franco Malerba & Annalisa Primi, 2020. "The fourth industrial revolution, changing global value chains and industrial upgrading in emerging economies," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 23(4), pages 359-370, October.
    30. Rafael A Corredoira & Gerald A McDermott, 2014. "Adaptation, bridging and firm upgrading: How non-market institutions and MNCs facilitate knowledge recombination in emerging markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 45(6), pages 699-722, August.
    31. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
    32. repec:wyi:journl:002196 is not listed on IDEAS
    33. Yi Che & Lei Zhang, 2018. "Human Capital, Technology Adoption and Firm Performance: Impacts of China's Higher Education Expansion in the Late 1990s," Economic Journal, Royal Economic Society, vol. 128(614), pages 2282-2320, September.
    34. Brandt, Loren & Thun, Eric, 2010. "The Fight for the Middle: Upgrading, Competition, and Industrial Development in China," World Development, Elsevier, vol. 38(11), pages 1555-1574, November.
    35. Julien Gourdon & Stéphanie Monjon & Sandra Poncet, 2014. "Incomplete VAT rebates to exporters : how do they affect China's export performance?," Working Papers 2014-05, CEPII research center.
    36. Raphael Auer & Thomas Chaney, 2009. "Exchange Rate Pass‐Through in a Competitive Model of Pricing‐to‐Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 151-175, February.
    37. XU, Bin & LU, Jiangyong, 2009. "Foreign direct investment, processing trade, and the sophistication of China's exports," China Economic Review, Elsevier, vol. 20(3), pages 425-439, September.
    38. Miaojie Yu, 2015. "Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms," Economic Journal, Royal Economic Society, vol. 125(585), pages 943-988, June.
    39. Chao, Chi-Chur & Chou, W. L. & Yu, Eden S. H., 2001. "Export Duty Rebates and Export Performance: Theory and China's Experience," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 314-326, June.
    40. Dai, Mi & Maitra, Madhura & Yu, Miaojie, 2016. "Unexceptional exporter performance in China? The role of processing trade," Journal of Development Economics, Elsevier, vol. 121(C), pages 177-189.
    41. Chih-Hai Yang & Chia-Hui Huang, 2005. "R&D, Size and Firm Growth in Taiwan‘s Electronics Industry," Small Business Economics, Springer, vol. 25(5), pages 477-487, December.
    42. Justin Tan, 2002. "Impact of Ownership Type on Environment–Strategy Linkage and Performance: Evidence from a Transitional Economy," Journal of Management Studies, Wiley Blackwell, vol. 39(3), pages 333-354, May.
    43. Erhard Berner & Georgina Gomez & Peter Knorringa, 2012. "‘Helping a Large Number of People Become a Little Less Poor’: The Logic of Survival Entrepreneurs," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 24(3), pages 382-396, July.
    44. Philippe Aghion, Antonin Bergeaud, Matthieu Lequien, Marc J. Melitz, 2018. "The Impact of Exports on Innovation: Theory and Evidence," Working papers 678, Banque de France.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Xiekui & Gong, Dayong & Huang, Yihan & Li, Yiting, 2024. "The Government's fiscal and taxation policy effect on enterprise productivity: Policy choice and optimal allocation," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 28-41.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. L. An & C. Hu & Yong Tan, 2017. "Regional effects of export tax rebate on exporting firms: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 25(4), pages 774-798, September.
    2. Sun, Churen & Wu, Han, 2023. "The impact of export VAT rebate on firm-product markups: Evidence from Chinese industrial enterprises," Economic Modelling, Elsevier, vol. 119(C).
    3. Zhang, Teng & Xu, Shu & Zhang, Shuoxun, 2022. "Are export tax rebates patronage for Chinese firms? An analysis of productivity," China Economic Review, Elsevier, vol. 75(C).
    4. Gideon Ndubuisi & Solomon Owusu, 2021. "How important is GVC participation to export upgrading?," The World Economy, Wiley Blackwell, vol. 44(10), pages 2887-2908, October.
    5. Huiying Zhang & Xiaohui Yang, 2016. "Intellectual Property Rights and Export Sophistication," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-19, October.
    6. Ziliang Deng & Xufei Ma & Ziyan Zhu, 2022. "Transactional Dependence and Technological Upgrading in Global Value Chains," Journal of Management Studies, Wiley Blackwell, vol. 59(2), pages 390-416, March.
    7. Xiaoping Li & Shuzhou Peng & Wei‐Chiao Huang & Qian Zhou, 2022. "What Drives Chinese Firms' Export Sophistication? A Perspective from the Rise of Minimum Wages," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(2), pages 28-59, March.
    8. Fieler, Ana Cecília & Harrison, Ann E., 2023. "Escaping import competition in China," Journal of International Economics, Elsevier, vol. 145(C).
    9. Zhang, Dongyang, 2019. "Can export tax rebate alleviate financial constraint to increase firm productivity? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 529-540.
    10. Bie, Xiaodong & Ciani, Andrea, 2021. "Born similar, develop apart: Evidence on Chinese hybrid exporters," DICE Discussion Papers 364, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    11. Sai Ding & Puyang Sun & Wei Jiang, 2016. "The Effect of Import Competition on Firm Productivity and Innovation: Does the Distance to Technology Frontier Matter?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(2), pages 197-227, April.
    12. Xuefeng, Qian & Yaşar, Mahmut, 2016. "Export Market Diversification and Firm Productivity: Evidence from a Large Developing Country," World Development, Elsevier, vol. 82(C), pages 28-47.
    13. Liu, Xuepeng & Shi, Huimin & Ferrantino, Michael, 2016. "Tax evasion through trade intermediation: Evidence from Chinese exporters," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 518-535.
    14. Liu, Lihua & Cao, Lele & Cao, Yuqiang & Lu, Meiting & Shan, Yaowen, 2024. "VAT credit refunds and firm productivity: Evidence from China's VAT reform," International Review of Financial Analysis, Elsevier, vol. 93(C).
    15. Anna Giunta & Domenico Scalera & Francesco Trivieri & Jeffrey B. Nugent & Mariarosaria Agostino, 2011. "Firm Productivity, Organizational Choice and Global Value Chain," Working Papers 2011R09, Orkestra - Basque Institute of Competitiveness.
    16. He, Dongwei & Wang, Yunfei & You, Kai, 2023. "Market entry and the dynamics of export product quality: Evidence from Chinese manufacturing firms," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 692-706.
    17. Sourafel Girma & Holger Görg, 2022. "Productivity effects of processing and ordinary export market entry: A time‐varying treatments approach," Review of International Economics, Wiley Blackwell, vol. 30(3), pages 836-853, August.
    18. Hongfeng Peng & Jingwen Yu, 2021. "Absorptive capacity and quality upgrading effect of OFDI: Evidence from China," Pacific Economic Review, Wiley Blackwell, vol. 26(5), pages 651-671, December.
    19. Bai, Xue & Hong, Shengjie & Wang, Yaqi, 2021. "Learning from processing trade: Firm evidence from China," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 579-602.
    20. Zhe Chen & Yoshinori Kurokawa, 2022. "Do exporters respond to both tariffs and nominal exchange rates? Evidence from Chinese firm‐product data," Review of International Economics, Wiley Blackwell, vol. 30(2), pages 514-548, May.

    More about this item

    Keywords

    Firm upgrading; Export tax rebates; Internal knowledge creation; International knowledge transfer; Labor-intensive firm; China;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:90:y:2024:i:c:s1049007823001100. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/asieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.