Factor Intensity, product switching, and productivity: Evidence from Chinese exporters

This paper analyzes how a firm's specialization in its core products after exporting affects its factor intensity and productivity. Using Chinese manufacturing firm data for the 1998–2007 period, we find that firms become less capital-intensive but more productive after exporting, compared to non-exporters that share similar ex ante characteristics. To rationalize these findings that contrast with existing studies, we develop a variant of the model by Bernard, Redding, and Schott (2010, 2011) to consider firms producing multiple products with varying capital intensity. The model predicts that when a firm in a labor-abundant country starts exporting, it specializes in its core competencies by allocating more resources to produce more labor-intensive products. Firm ex ante productivity is associated with a smaller decline in capital intensity after exporting. A sharper post-export decline in capital intensity is associated with a larger increase in measured total factor productivity. We find firm-level evidence supporting these predictions. Using transaction-level data for the 2000–2006 period, we show that Chinese new exporters add products that are less capital-intensive than their existing products and drop those that are more capital-intensive in subsequent years.