Details

Autor(en) / Beteiligte

• Sun, Chen

Titel

Essays on Firms' Responses to Trade Liberalizations

Ort / Verlag

ProQuest Dissertations & Theses

Erscheinungsjahr

2020

Link zum Volltext

• ProQuest

Quelle

ProQuest Dissertations & Theses A&I

Beschreibungen/Notizen

• This dissertation studies firms' responses to trade liberalizations, with a focus on their investment and sales adjustment in the short and medium run. The Chinese textile and apparel industries from 1998 to 2006 provide an ideal setting for this study, because, during this episode, the two industries experienced large export-side trade liberalizations featuring a complete removal of a quota system under termination of the Multifiber Arrangement (MFA). Chapter 1 documents the role of advanced foreign machinery in explaining China’s export success to high-income markets in the two industries, in addition to the quota removal. New market access to the United States, the European Union, and Canada increased demand for high-quality products and for high-tech machinery. Utilizing industry knowledge to categorize investment into high-end and low-end machinery, I find in the Chinese data that the size of high-end textile machinery and its proportion to the low-end machinery at the firm level are positively correlated with output quality and export expansion to OECD countries. I address how high-end machinery enables higher output quality leading to better export prospects in a dynamic model in which firms upgrade machinery in anticipation of the trade liberalizations and choose product quantity, quality, and export destinations. Counterfactual results suggest that without access to high-end machinery, China's export sales to OECD markets in the sample period would fall by 6 percent, with export quality falling by 4 percent. This mechanism explains about 15 percent of the export sales reduction had the MFA quotas remained in place in 2005. Chapter 2 documents firms’ reallocating sales across export markets when production is inflexible and costly to adjust to an optimal capacity in the short run. Leveraging the last round of the quota removal in 2005 brought about by termination of the Multifiber Arrangement, we use a difference-in-differences design that compares firm-level Chinese exports of the previously-capped and uncapped products to non-participating countries of the MFA. We find strong evidence of market interdependence empirically. The quota removal led to a significant decrease in the exports of MFA-capped products. The suppliers with dampened sales either increased sales in the liberalizing markets or entered them for the first time. We interpret these findings in a multi-country trade model with increasing marginal cost of production. In the model, the marginal cost rises when firms begin to serve markets with growing demand, resulting in a fall in sales in, or even exit, from the countries outside of the MFA. Quantitative results suggest that significant inflexibility of production at the product-level is needed to justify a negative and nearly one-to-one co-movement in trade flows across markets. Counterfactual exercises show that the quota removal increases the price index aggregated over Chinese producers in the non-participating markets and the domestic markets by 1.73 percent and 1.38 percent, respectively. We derive welfare changes in the exporter country, accounting for changes in marginal costs. Our analysis suggests that gains from trade liberalization in the participating countries may come at the expense of the others.