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Firm Performance and Trade with Low-Income Countries: Evidence from China

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  • Schmerer, Hans-Jörg
  • Wang, Luhang

Abstract

Krugman's (1979, 1980) monoplistic competition model of trade showed that countries with more similar per-capita GDP trade more with each other. Does this mean that developing countries shift trade towards developed countries as a result of high economic growth? The results reported in this paper challenge the link between per-capita GDP and trade predicted by the force of gravity. The matched customs-manufacturing firm data used in this study reveal a rising low-income country trade share around and after China's accession to the World Trade Organization. Based on this stylized fact we analyze the link between firm performance and different export strategies. We find strong evidence for sequential sorting into different export-modes. i) only the most productive firms export to low-income countries, ii) export to low-income countries is coupled to export to high-income countries, iii) younger firms solely export to export markets with higher potential, and iv) low-income markets are served additionally by older firms. Moreover, we find that entry into simultaneous exports to low- and high-income destinations is associated with a higher productivity compared to the average productivity measured by incumbents' firm performance.

Suggested Citation

  • Schmerer, Hans-Jörg & Wang, Luhang, 2014. "Firm Performance and Trade with Low-Income Countries: Evidence from China," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100487, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100487
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    Cited by:

    1. Stephan, Gesine & Uthmann, Sven, 2014. "Akzeptanz von Vergeltungsmaßnahmen am Arbeitsplatz : Befunde aus einer quasi-experimentellen Untersuchung," IAB-Discussion Paper 201427, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F15 - International Economics - - Trade - - - Economic Integration

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