Import liberalization and export product mix

Abstract

This paper develops a monopolistic competition model of multi‐product firms to explain the effect of trade liberalization on the product mix of multi‐product exporting firms. The model shows that input‐tariff reduction leads to increases in a firm's export values, especially for products that are farther from a firm's core competency. To test the theoretical predictions, we use the merged data built upon the highly disaggregated Chinese firm‐level production data and customs data for 2000–2006. Consistent with the theory, the positive impact of input trade liberalization on export value is found to be more pronounced for peripheral products, and input‐tariff reduction also expands a firm's product scope, affecting firm's average productivity.

Global Value Chains

“…In recent work, Lu (2019) and Wang (2021) have also built on the framework to study the interdependencies between the sourcing decisions of firms and the profitability of innovation and automation, respectively. Finally, Laugesen (2018) and Fan et al (2019) both study comparative statics in the version of the model with tradeable final goods, allowing the industry price index to adjust, while Fan et al (2021) investigate the effects of input trade liberalization on the product mix of multi-product exporting firms.…”

The Impact of Imports on Exports: Evidence of the Cemac Zone

“…Lowering trade barriers can be a key strategy to increase domestic companies' global competitiveness, particularly when it comes to intermediate inputs. The liberalization of product imports, on the other hand, leads to a reduction in the value of exports (Fan et al, 2022).…”

Locking in overseas buyers amid geopolitical conflicts

“…Its impacts on firms have been a significant research focus in the literature of economics, international business (IB), and OM. Economics researchers focus on discussing how the tariff reduction affects importers in terms of increasing product quality (Fan et al, 2015), expanding product scope (Fan, Luong, et al, 2022), facilitating offshoring (Pierce & Schott, 2016), and maintaining firm cross-border buyer-supplier transactions (Monarch, 2022).…”

“…Its impacts on firms have been a significant research focus in the literature of economics, international business (IB), and OM. Economics researchers focus on discussing how the tariff reduction affects importers in terms of increasing product quality (Fan et al, 2015), expanding product scope (Fan, Luong, et al, 2022), facilitating offshoring (Pierce & Schott, 2016), and maintaining firm cross‐border buyer–supplier transactions (Monarch, 2022). IB researchers, meanwhile, focus on how tariff reduction changes the cross‐border competitive environment landscape faced by the firms in affected countries (e.g., Baggs & Brander, 2006; Flammer, 2015; Seyoum, 2007).…”

“…In the early 21st century, the blossoming of international trade, fueled by trade liberalization, has created a low‐tariff and stable international trade environment (Pierce & Schott, 2016). This decrease in trade barriers has enabled buyers to access low‐cost production and unique resources globally (Levy, 2005), enhancing their product quality, scope, and value (Fan et al, 2015; Fan, Luong, et al, 2022). Concurrently, trade liberalization has allowed suppliers to tap into global markets, generating substantial revenue and securing resources for technological upgrades (Bustos, 2011).…”