“Firm performance and trade with low-income countries Evidence from China”

Hans-Jörg Schmerer and Luhang Wang (University of Xiamen)

in: CESIFO Working Paper No. 4934; Category 8: Trade Policy; August 2014.

Do firms in developing countries shift trade towards developed economies as a result of high economic growth? The matched customs-manufacturing firm data used in this study confronts this hypothesized link with empirical evidence. Our analysis reveals 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 characteristics and trade with low-income countries. We find evidence for sequential sorting into different export-modes according to firm productivity: i) only the most productive firms export to low-income countries, ii) exporting to low-income countries is mostly coupled to exporting to high-income countries, and iii) firms that switch to export to markets with higher potential are younger than firms that switch to export to both high-and low-income markets. Moreover, we find that firms tend to start exporting through specialization on high-income markets before diversifying to both types of markets