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Connect to trade

Author

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  • Ding, Haoyuan
  • Fan, Haichao
  • Lin, Shu

Abstract

A key foundation of Chinese-style institutions is that governments at different levels control resources and utilize their power to support businesses connected to them. We examine how this institutional feature affects firm exports. We first provide a simple model to demonstrate the underlying mechanisms. In our model, politically connected firms gain a comparative advantage in contract-intensive and financially-dependent sectors. But political connections also have an adverse effect on firm exports because of managerial inefficiency. The overall effect is thus ambiguous and differs across sectors. Employing merged Chinese listed manufacturing firm data and Chinese custom data for the years 2004–2013, we find robust evidence consistent with our model's predictions.

Suggested Citation

  • Ding, Haoyuan & Fan, Haichao & Lin, Shu, 2018. "Connect to trade," Journal of International Economics, Elsevier, vol. 110(C), pages 50-62.
    • Handle: RePEc:eee:inecon:v:110:y:2018:i:c:p:50-62
    DOI: 10.1016/j.jinteco.2017.10.004
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    4. Zhang, Yi & Liu, Chun & Wang, Ting, 2020. "Direct or indirect? The impact of political connections on export mode of Chinese private enterprises," China Economic Review, Elsevier, vol. 61(C).
    5. Ding, Haoyuan & Jin, Yuying & Koedijk, Kees G. & Wang, Yunjin, 2020. "Valuation effect of capital account liberalization: Evidence from the Chinese stock market," Journal of International Money and Finance, Elsevier, vol. 107(C).
    6. Jiatao Li & Haoyuan Ding & Yichuan Hu & Guoguang Wan, 2021. "Dealing with dynamic endogeneity in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(3), pages 339-362, April.
    7. Yu Ri KIM & TODO Yasuyuki, 2019. "Are Politically Connected Firms More Likely to Export?," Discussion papers 19049, Research Institute of Economy, Trade and Industry (RIETI).
    8. Zhang, Yi & Liu, Chun, 2021. "Religion and unproductive entrepreneurship: The role of risk aversion," European Journal of Political Economy, Elsevier, vol. 70(C).
    9. Haoyuan Ding & Kees G. Koedijk & Chang Li & Tong Qi, 2021. "The internationalisation of Chinese firms: Impact of FDI experience on export performance," The World Economy, Wiley Blackwell, vol. 44(12), pages 3609-3640, December.

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    More about this item

    Keywords

    Political connections; Exports; Informal institutions; China;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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