I thank Robert Feenstra, Gordon Hanson, Samuel Kortum, Kala Krishna, Zhiyuan Li, Justin Lin, Devashish Mitra, Larry Qiu, Jose Antonio Rodriguez Lopez, Robert Staiger, Joaquim Silvestre, Wei Tian, Heiwai Tang, Yang Yao and Zhihong Yu for their very helpful comments and constructive suggestions. Financial support from China's Natural Science Foundation Grant (No. 71003010) is gratefully acknowledged. I thank the editor, Rachel Griffith, and two anonymous referees for their very insightful suggestions. All errors are mine.
Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms
Article first published online: 25 JUN 2014
© 2014 Royal Economic Society
The Economic Journal
How to Cite
Yu, M. (2014), Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms. The Economic Journal. doi: 10.1111/ecoj.12127
- Article first published online: 25 JUN 2014
- Accepted manuscript online: 18 FEB 2014 11:50PM EST
- Manuscript Accepted: 25 NOV 2013
- Manuscript Received: 5 SEP 2012
- China's Natural Science Foundation. Grant Number: 71003010
This article explores how reductions in tariffs on imported inputs and final goods affect the productivity of large Chinese trading firms, with the special tariff treatment that processing firms receive on imported inputs. Firm-level input and output tariffs are constructed. Both types of tariff reductions have positive impacts on productivity that are weaker as firms' share of processing imports grows. The impact of input tariff reductions on productivity improvement, overall, is weaker than that of output tariff reductions, although the opposite is true for non-processing firms only. Both tariff reductions are found to contribute at least 14.5% to economy-wide productivity growth.