Export and Productivity of
Chinese Manufacturing Firms
LU Jiangyong
October 14, at CEFIR
Motivation

Importance of export for China



China’s total export (billion USD): 10 762
36 Percentage of GDP
Complex, interesting, but less studied




Rodrik (2006): China export much higher productivity
products than expected based on its income per capita
Xu (2006): not so sophisticated after adjustment of quality
Gilboy (2004): “high-end” exports are dominated by FIEs
“8 hundred million shirt for a Boeing”
Issues

Policy issues



Whether Chinese indigenous firms benefit from
export?
If so, what roles do foreign affiliates play?
Academic issues


Are the relationship between export and
productivity different for indigenous firms and
foreign affiliates?
If so, why?
Literature on Export and Productivity

Empirical Evidences

Stylized fact:


Explanations



exporters are different from non-exporters (larger, more
productive, more capital intensive, etc.)
Self-selection (SS) in developed and developing countries
Learning by exporting (LE) not in developed countries, but in
developing countries (recently)
Theoretical Developments

Interaction between productivity differences and fixed costs
of exporting (Melitz, 2003)



Most productive firms: domestic market + export (FDI)
Intermediate firms: domestic market only
Low-productive firms: close down
Empirical Evidence from China

China
 Kraay (1999)


SS not studied; Support LE
Biased sample




Size and ownership bias: 96% output by 2.5% firms (SOE)
Exporter bias: over 70% firms are exporter
Industry bias: industries with 42% output in the population are not
represented
Xu (2005)


No evidence on SS; Some evidence on LE
Survey data
Representativeness of the sample in
China’s total export
1998
1999
2000
2001
2002
2003
2004
2005
Number of firm in the cross-sectional sample 144,161 140,903 142,549 152,345 162,769 178,467 156,017 243,332
Export in the sample (100 million USD)
China’s total export (100 million USD)
Percentage in China’s total export
1,265
1,351
1,712
1,917
2,374
3,200
3,959
5,816
1,837
69%
1,949
69%
2,492
69%
2,661
72%
3,256
73%
4,382
73%
5,933
67%
7,620
76%
Note: China’s total exports come from China Statistics Yearbooks for various years.
Fact #1 – Geographic Concentrated

Share in China's Total Export (2005)
 Top 3:
59.1%



Guangdong:

Jiangsu:

Zhejiang:
Next 3:

Shanghai:

Shandong:

Fujian:
Top 6:
30.33%
16.13%
12.66%
23.6%
10.73%
7.31%
5.54%
82.7%
Fact #2 – Foreign affiliates export more

Foreign affiliates:



Wholly owned; Joint Venture; Contractual
Hong Kong, Macau, and Taiwan; Other countries
Facts

% of exporter (mean 1998-2005)


% of output exported (mean 1998-2005)


All: 27.14% ; FIE: 62.93%; Indigenous: 18.68%
All: 20.33% ; FIE: 40.95%; Indigenous: 10.48%
% of China’s export exported by FIEs

1998: 59.66%  2005: 70.98%
Exporter Premia %
ln(Yi )    1Exporteri  2 Sizei  3 Industry  4 Province  5Year   i
All firms
Performance measurement
Employment
TFP
Capital labor ratio
Indigenous
Foreign
firms
affiliates
Exporter
Exporter
Exporter
premia % R2
premia % R2
premia % R2
26.5 *** 0.62
35.0 *** 0.71
43.0 *** 0.52
8.8 *** 0.54
12.1 *** 0.52
-2.3 *** 0.55
-16.4 *** 0.37
-23.6 *** 0.35
-24.9 *** 0.49
Exporter Premia %
ln(Yi )    1FOR _ Exporteri   2 FOR _ nonExporteri   3 Indig _ Exporteri
  4 Sizei  5 Industry   6 Province   7Year   i
Capital
Employment
Foreign affiliated exporters
Foreign affiliated non-exporters
R2
labor ratio
-4.10
17.19
13.62
-40.76
22.60
68.77
32.11
10.16
-22.05
Indigenous exporters
Indigenous non-exporters
TFP
--
-0.64
-0.54
0.39
Self-Selection into exporting

TFP Estimation:



Binary choice model:



Firm-level and industry-level price deflators
Levinsohn and Petrin (2003): use intermediate inputs
as the proxy of unobservable productivity shocks
DV: Export or Not
IV: fixed costs of exporting + firm characteristics +
(industrial and regional) export by foreign affiliates
Unobserved firm characteristics:


Fixed-effect model
Arellano-Bond GMM (1991, 1998)
Export decision
(1)
(2)
(3)
All firms
Foreign affiliates
Indigenous firms
Exporting status t-1
0.576 (0.006) ***
0.480 (0.010) ***
0.598 (0.008) ***
TFP
0.007 (0.001) ***
Labor
0.038 (0.003) ***
0.049 (0.006) ***
0.037 (0.004) ***
New product ratio
0.104 (0.009) ***
0.050 (0.015) ***
0.121 (0.013) ***
Capital labor ratio
-0.009 (0.003) ***
-0.017 (0.006) ***
-0.012 (0.003) ***
0.123 (0.008) ***
0.040 (0.012) ***
Independent variable
Foreign share
State share
-0.016 (0.005) ***
-0.005 (0.002) **
-0.005 (0.017)
0.008 (0.001) ***
0.003 (0.022)
-0.018 (0.006) ***
Province foreign exporters
(other industries)
0.639 (0.031) ***
Industry foreign exporters
(other provinces)
0.060 (0.013) ***
Province-industry exporters
0.034 (0.006) ***
Learning by exporting

Sample:


Firms that did not export in 1998
Models:



DV: TFP
IV: export status in previous year, firm-specific and other factors
that may explain TFP
Fixed effects model accounting for persistence of productivity
yit  i  1 yi ,t 1   2 Exporti ,t 1   x X i ,t 1   z Z t 1  tYeart   it

Dynamic GMM (Arellano-Bond, 1991, 1998)
yit  1yi ,t 1   2 Exporti ,t 1   x X i ,t 1   z Z t 1   tYeart   it
Learning by exporting
Independent variables
TFP t-1
Exporting status t-1
Labor t-1
All firms
0.344***
Foreign
Indigenous
affiliates
firms
0.462***
0.320***
0.0840*** -0.0716***
0.139***
0.166***
0.369***
0.174***
0.0619*
0.0139
0.0642*
Average wage t-1
0.476***
0.419***
0.464***
Foreign share t-1
0.0715*
0.0852**
0.157
-0.902***
-0.0288
-0.892***
New product ratio t-1
State share t-1
Share of output by foreign affiliates in the
industry in this province t-1
0.101**
Share of output by foreign affiliates in the
industry in other provinces t-1
-0.0262
Selection bias

Matched sample based on propensity score
of export decision
Learning by exporting (matched sample)
Independent variables
TFP t-1
All firms
Foreign
Indigenous
affiliates
firms
-0.562***
-0.636***
-0.588***
Exporting status t-1
0.113***
-0.0178
0.162***
Labor t-1
0.282***
0.328***
0.292***
New product ratio t-1
0.134***
0.0804
0.142***
Average wage t-1
0.147***
0.170***
0.117***
Foreign share t-1
0.145***
0.0805**
0.223**
-0.166***
-0.0232
-0.167***
State share t-1
Share of output by foreign affiliates in the
industry in this province t-1
-0.0305
Share of output by foreign affiliates in the
industry in other provinces t-1
-0.0584
Hong Kong, Macau, and Taiwan
vs. Other countries (OECD)

NO significant difference between HMT
affiliates and OECD affiliates





% of exporter
(60.8% vs. 62.4%)
Export intensity
(43.7% vs. 40.2%)
Exporter premia
(TFP premia “-”)
Self-selection
(coefficient of TFP “-”)
Learning by exporting (coefficient of previous
export status “-”)
Explanation of differences between
indigenous and foreign affiliated firms

Export decision (fixed cost of exporting)

Foreign affiliates



Distribution advantages in international markets
More productive than indigenous firms
Learning by exporting

Foreign affiliates



Seeking for cheap resources
Inter-firm export (77% for affiliates of U.S. companies)
Indigenous firms


Higher quality requirement
Competition
Explanation of differences between
indigenous and foreign affiliated firms

Transfer pricing



For foreign affiliates, export facilitates transfer pricing
In China, 300 million Yuan illegal transfer pricing in 2005
Policy restrictions


Before 2001, to establish wholly owned foreign affiliates, (1)
employing advanced technologies and equipments, or (2)
export at least 50% of total output
Correlation of technology level (R&D intensity, new
products percentage, intangible assets) and export
intensity for wholly owned foreign affiliates is negative and
significant before 2001, but insignificant after then
The End