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Expanding export variety: The role of institutional reforms in developing countries

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  • Sheng, Liugang
  • Yang, Dennis Tao

Abstract

This paper presents theory and evidence that institutional reforms in developing countries can help expand their product varieties in exports. Our model suggests that relaxing ownership restrictions on foreign direct investment, improving contract enforcement, and reducing offshoring cost can induce multinational companies to produce new products in host developing countries. Consistent with these theoretical predictions, we find empirical evidence that ownership liberalization, judicial quality and decline in offshoring costs played an important role in increasing the extensive margin of processing exports in China for the period of 1997–2007.

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  • Sheng, Liugang & Yang, Dennis Tao, 2016. "Expanding export variety: The role of institutional reforms in developing countries," Journal of Development Economics, Elsevier, vol. 118(C), pages 45-58.
    • Handle: RePEc:eee:deveco:v:118:y:2016:i:c:p:45-58
    DOI: 10.1016/j.jdeveco.2015.08.009
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    More about this item

    Keywords

    Export variety; Foreign direct investment; Ownership structure; Contract environment; Processing trade; Policy reform; China;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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