We explore the effect of value‐added tax (VAT) on domestic value added in exports where VAT is incorporated into a theoretical model to analyze its distortion on intra‐firm resource allocation. The VAT pilot reform in the three northeast provinces of China in 2004 provided a natural experiment which generated significant effective VAT rate differences due to deduction policies. We utilize the reform as an exogenous shock to identify its effect on the domestic value added ratio (DVAR) in exports at the firm level. Empirical results show that the reform has significantly increased the firms' DVAR by allowing more deduction of fixed asset purchases that lowers the effective VAT rates of the affected firms, which confirm the findings of our conceptual framework. This effect is greater for large and medium‐sized firms than for small and microscale firms. The VAT reform in 2004 has significant effect on the DVAR of state‐owned enterprises and domestic private firms, but not for foreign invested firms. The reform also has higher effect for firms from higher market concentration sectors.

We estimate the policy effect of belt and road initiative (BRI) on China's import. We use highly detailed, product‐country level data from China Customs Trade Statistics Database which covers 5364 types of products and 201 economies from 2010 to 2017 to investigate the policy effects and the underlying mechanisms. We find that the BRI has significantly boosted China's imports from countries along the route. The BRI have significant expansion effect on imports of existing products as well as positive effects on imports of new product import and product exit, which means BRI may also contribute to the optimization of product structure and growth in value of China's imports. Moreover, BRI have positive effects on both general trade and processing trade. Mechanism analysis shows that policy coordination, cultural affinity, and maritime transportation connectivity have strong explanatory power on the policy effects of BRI. We also find that the BRI has played a "boosting" role for import boost for new RTA partner as well as non‐RTA members along the route. We further examine the impact of BRI on global bilateral trade, and the result shows that BRI has generally promoted bilateral trade among all countries along the route, not limited to origin‐China pairs.