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Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms

Authors

  • Miaojie Yu

    Corresponding author
    1. China Centre for Economic Research, National School of Development, Peking University
    • Corresponding author: Miaojie Yu, China Centre for Economic Research (CCER), National School of Development, Peking University, Beijing 100871, China. Email: mjyu@ccer.pku.edu.cn.

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  • 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.

Abstract

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.

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