Trade Liberalization and Markup: Micro Evidence from China

Date

2017-02-20

Advisors

Journal Title

Journal ISSN

ISSN

Volume Title

Publisher

Elsevier

Type

Article

Peer reviewed

Yes

Abstract

This paper presents evidence from highly disaggregated Chinese firm-product data that, given productivity, input tariff reductions induce an incumbent importer/exporter to increase product markups. We further investigate empirically the mechanisms underlying this trade liberalization effect, and find that input tariff reductions decrease marginal costs, and their effects on markup adjustments are more profound among firms with higher import dependence. Moreover, we exploit unique features of Chinese data by comparing results for two trade regimes: ordinary trade (wherein firms pay import tariffs to import) and processing trade (wherein firms are not subject to import tariffs). While the aforementioned trade liberalization effects and mechanisms only apply to ordinary trade, processing trade samples are used in a placebo test. The paper also shows that more productive firms charge higher markups for products. All these findings are robust to alternative markup measures including one estimate using physical-quantity output data, different production function specifications, a subsample consisting only of pure exporters, and estimations based on our theoretical derivations.

Description

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.

Keywords

Tariff reduction, Markup, Marginal cost, Ordinary trade

Citation

Fan, H. et al. (2017) Trade Liberalization and Markup: Micro Evidence from China. Journal of Comparative Economics, 46 (1), pp. 103-130

Rights

Research Institute

Institute for Applied Economics and Social Value (IAESV)