1
GROWING LIKE CHINA:
FIRM PERFORMANCE AND GLOBAL
PRODUCTION LINE POSITION
Davin Chor
Kalina Manova
Zhihong Yu
National University of Singapore
University of Oxford & CEPR
University of Nottingham
:
EITI Indonesia, March 9, 2017
2
Motivation
• Fragmentation of production across countries a key trend in
international trade over last two decades
• Rise in trade in intermediate inputs for further processing and
assembly relative to trade in final consumer goods
• Growing multinational activity and cross-border linkages
• Splicing of global production chains raises new policy questions
• How should trade policy be designed?
• What are the welfare and distributional consequences of global
supply chains and policies that govern them?
• How are firm growth, technology transfer to emerging economies
and transmission of shocks across borders affected?
3
This Paper
• Three goals
• Characterize Chinese firms’ position in global production chains
• Empirically assess role of production line position for firm lifecycle
• Provide conceptual framework that rationalizes empirical patterns
• China provides an ideal context to shed light on policy questions
• Firms’ participation in global production networks is a driving force
behind China’s rise as world’s largest exporter
• Government policy actively encourages firms’ engagement in
global value chains (c.f. Manova and Yu 2013)
4
Overview
• Characterize Chinese firm’s (global) production line position using
firm-level customs and balance-sheet data and aggregate I-O tables
• Measure upstreamness of firms’ exports and imports
• Upstreamness = # production stages between an industry and final
demand (c.f. Fally 2012; Antràs, Chor, Fally, Hillberry 2012)
5
Overview
• Characterize Chinese firm’s (global) production line position using
firm-level customs and balance-sheet data and aggregate I-O tables
• New stylized facts about China’s position in global production chains
• Sharp rise in import upstreamness, stable export upstreamness and rapid
expansion in production stages conducted in China over 1992-2011
• Systematic links between production line position & key firm characteristics
6
Overview
• Characterize Chinese firm’s (global) production line position using
firm-level customs and balance-sheet data and aggregate I-O tables
• New stylized facts about China’s position in global production chains
• Production chain position an important feature of firm lifecycle
• Spanning more production stages generates higher value added and
profits, but requires higher sunk and fixed operation costs
• Firms expand into more production stages (in China) and thereby earn
higher profits as they grow bigger, more productive and more experienced
7
Contribution
• Growing interest in understanding global value chains
• Costinot et al. (2013): cross-country productivity differences affect which
production stages countries specialize in
• Antràs and Chor (2013), Alfaro, Antràs, Chor, Conconi (2015): production line
position influences firms’ optimal sourcing strategy in-house vs. arms’-length
• Manova and Yu (2013): credit constraints shape Chinese firms’ trade regime
• Kee and Tang (2014): domestic value added of China’s processing exports
increased substantially from 2000 to 2006
• Our analysis sheds light on the determinants and consequences of global
value chains
8
Roadmap
1.
Data and upstreamness measures
2.
Stylized facts
3.
Conceptual framework
4.
Empirical results
5.
Conclusion
9
Data
• Trade: Chinese Customs Transaction Statistics, 1992-2011
• Value of exports and imports
• Firm data 2000-2011 (firm, country, HS8 product, regime)
• City data 1997-1999 (city, country, HS8 product, regime)
• Province data 1992-1996 (province, country, HS6 product, regime)
• Balance sheets: Annual Survey of Industrial Firms
• All state-owned enterprises and all private companies with sales >5mil
Chinese Yuan, 1999-2007
• Firm attributes (age, ownership, primary GBT4 industry), size (output),
production inputs (employment, assets, intermediate inputs)
10
Data
• Matched CCTS-ASIF data, 2000-2007
• Match on firm names and contact information (Wang and Yu 2012)
• Large and representative matched sample: ~220,000 firm-year
observations (exporter-importers) and ~70% of exports in ASIF
• Chinese Input-Output Table
• 135 IO sectors in 2007
11
Industry Upstreamness
• Following Fally (2012) and Antras et al. (2012), the
upstreamness of industry i is defined as
∑
Fi
j
=
U i = 1×
+ 2×
Yi
Yi
N
d F
1 ij
∑ ∑ ∑
+4 ×
N
N
N
j 1 =
k 1=
l 1
=
∑
∑
+ 3×
N
j
j 1=
k 1
=
d il d lk d kj F
Yi
N
j
d ik d kj F
Yi
+ ................
• Yi = gross output of industry i
• Fi = final use of industry i
• dij = value of i needed to produce one yuan worth of j’s output
• dij adjusted for open economy and inventorization
• Mean 3.16, st dev 1.12, range 1.00-5.86
j
12
10 Most and Least Upstream Industries
Social welfare (IO129)
Public administration and social organizations (IO135)
Construction (IO95)
Sports (IO133)
Public facilities management (IO123)
Education (IO126)
Convenience food manufacturing (IO18)
Health (IO127)
Software industry (IO107)
Resident services (IO124)
1
1.026
1.058
1.060
1.074
1.212
1.269
1.269
1.275
1.382
Nonferrous metal alloying and smelting (IO61)
Pipeline transportation (IO101)
Coking (IO38)
Ferrous metal mining industry (IO8)
Chemical fiber manufacturing (IO47)
Scrap waste (IO91)
Coal mining and washing industry (IO6)
Basic chemical raw materials manufacturing (IO39)
Oil and gas exploration industry (IO7)
Nonferrous metal mining industry (IO9)
4.877
5.023
5.095
5.114
5.162
5.256
5.345
5.375
5.508
5.861
13
Firm Upstreamness
• Measure the upstreamness of each firm’s exports and
imports as weighted average of industry upstreamness
𝑋𝑋
𝑈𝑈𝑓𝑓𝑓𝑓
𝑁𝑁
𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓
=�
𝑈𝑈𝑖𝑖
𝑋𝑋𝑓𝑓𝑓𝑓
𝑖𝑖=1
• 𝑋𝑋 = exports , 𝑀𝑀 = imports
• 𝑓𝑓 = firm, 𝑖𝑖 = industry, 𝑡𝑡 = year
• 𝑈𝑈𝑖𝑖 = industry upstreamness
𝑀𝑀
𝑈𝑈𝑓𝑓𝑓𝑓
=
𝑁𝑁
𝑀𝑀𝑓𝑓𝑓𝑓𝑓𝑓
�
𝑈𝑈𝑖𝑖
𝑀𝑀𝑓𝑓𝑓𝑓
𝑖𝑖=1
14
Firm Upstreamness
• Also measure the difference between each firm’s import
and export upstreamness
𝑀𝑀
𝑋𝑋
𝑈𝑈𝑓𝑓𝑓𝑓
−𝑈𝑈𝑓𝑓𝑓𝑓
𝑁𝑁
𝑀𝑀𝑓𝑓𝑓𝑓𝑓𝑓 𝑋𝑋𝑓𝑓𝑓𝑓𝑓𝑓
=�
−
𝑈𝑈𝑖𝑖
𝑀𝑀𝑓𝑓𝑓𝑓
𝑋𝑋𝑓𝑓𝑓𝑓
𝑖𝑖=1
• Capture span of production stages conducted by Chinese firms
within China
• These production stages may not necessarily take place within firm
boundaries
• production stages ≠ value added
15
Summary Statistics
Firm-Year Level, Entire Sample
2000-2011
2000
2011
Number of observations
Number of firms
Fraction, State-Owned Enterprise
Fraction, Joint Venture
Fraction, Foreign-Owned Enterprise
Fraction, Private Enterprise
Fraction, Trade Intermediary
2,290,090
570,897
0.05
0.13
0.22
0.60
0.22
81,995
81,995
0.18
0.38
0.31
0.13
0.13
310,869
310,869
0.03
0.09
0.22
0.66
---
Value of exports, Mean
5.96E+06
[8.68E+07]
7.04E+06
[1.75E+08]
3.97E+06
[4.15E+07]
3.59E+06
[5.20E+07]
7.45E+06
[1.07E+08]
1.11E+07
[2.87E+08]
Export upstreamness (UX), Mean
3.285
[0.782]
3.245
[0.793]
3.309
[0.773]
Import upstreamness (UM), Mean
3.606
[0.839]
3.564
[0.836]
3.624
[0.838]
UM - UX, Mean
0.426
[0.902]
0.462
[0.915]
0.393
[0.882]
Value of imports, Mean
16
Roadmap
1.
Data and upstreamness measures
2.
Stylized facts
3.
Conceptual framework
4.
Empirical results
5.
Conclusion
17
China’s Production Line Position 1992-2011
• Exports systematically more downstream than imports
• Export downstreamness stable over time, import upstreamness rising fast
18
Broad Trends by Trade Regime
• Aggregate trends driven by ordinary trade rather than
processing trade
19
Broad Trends by Ownership Type
• Export and import upstreamness higher for SOEs than for
private domestic companies than for foreign-owned firms
20
Entrant vs. Survivor Firms
• Entrants conduct fewer production stages than incumbents
• Survivors expand span of production stages over time
21
Survivor Firms’
Dynamics
• Within firms over time:
• export upstreamness
declines moderately
• import upstreamness rises
sharply
• gap b/w import and export
upstreamness widens quickly
UX
UM
UM - UX
Year, 2001
0.0005
[0.0018]
-0.0019
[0.0034]
-0.0024
[0.0040]
Year, 2002
0.0016
[0.0021]
0.0070*
[0.0038]
0.0011
[0.0046]
Year, 2003
-0.0004
[0.0022]
0.0503***
[0.0039]
0.0276***
[0.0048]
Year, 2004
-0.0027
[0.0023]
0.0879***
[0.0040]
0.0576***
[0.0049]
Year, 2005
-0.0049**
[0.0024]
0.1286***
[0.0041]
0.0869***
[0.0051]
Year, 2006
-0.0112***
[0.0024]
0.1517***
[0.0042]
0.1061***
[0.0052]
Year, 2007
-0.0064***
[0.0025]
0.1962***
[0.0042]
0.1388***
[0.0053]
Year, 2008
-0.0130***
[0.0025]
0.2144***
[0.0043]
0.1630***
[0.0053]
Year, 2009
-0.0127***
[0.0026]
0.2347***
[0.0044]
0.1802***
[0.0055]
Year, 2010
-0.0120***
[0.0026]
0.2300***
[0.0044]
0.1666***
[0.0055]
Year, 2011
-0.0105***
[0.0026]
0.2339***
[0.0044]
0.1659***
[0.0056]
Y
Y
Y
1,846,666
0.89
1,348,126
0.76
904,702
0.75
Dep variable:
Firm FE
Observations
R2
22
Roadmap
1.
Data and upstreamness measures
2.
Stylized facts
3.
Conceptual framework
4.
Empirical results
5.
Conclusion
23
Set Up
• At birth, firms enter an output industry and receive an
exogenous productivity draw
• Output industry and upstreamness UX remain fixed over firm lifecycle
• Firm productivity can evolve due to exogenous shocks
• Production technology
• Production requires completion of a series of sequential steps {N,…,1}
• Firms can outsource upstream stages {N,…,UM} but must complete
remaining stages {UM-1,…,1} in-house
• Performing a production stage in-house entails a fixed sunk adoption
cost and a fixed per-period production cost
• Production experience lowers sunk adoption cost of contiguous stages
because of learning from buyers and suppliers
24
Firm Behavior
• Firms choose optimal UM to maximize profits
• Key trade-off: performing more production stages in-house
increases value added and profits, but imposes higher fixed costs
• Lower marginal cost, more bargaining power with in-house production
• Link between economies of scale and economies of scope
• Firms adjust UM over time in response to exogenous demand and
productivity shocks and endogenous learning from experience
• Firms use more upstream inputs and span more production stages
when they expand in size, grow in productivity and gain experience
25
Domestic vs. Foreign Inputs and Outputs
• Assume that firms sell the same product at home and abroad
• output upstreamness = export upstreamness
• Assume either that firms use domestic and foreign inputs in fixed
proportion …
• input upstreamness = imported input upstreamness
• … or that firms incur fixed adoption and management costs per
each production stage they oversee in China, whether in-house or
outsourced to domestic supplier
• input upstreamness = imported input upstreamness
26
Production Line Position over Firm Lifecycle
• Determinants of production line position
• Size, productivity, experience
• Correlates of production line position
• Cost structure, input structure
• Outcomes of production line position
• Profits, value added
27
Roadmap
1.
Data and upstreamness measures
2.
Stylized facts
3.
Conceptual framework
4.
Empirical results
5.
Conclusion
28
Estimation Approach
• Examine relationship between production line position
and firm characteristics within firms over time
𝑀𝑀
𝑋𝑋
𝑀𝑀
𝑋𝑋
𝑈𝑈𝑓𝑓𝑓𝑓
, 𝑈𝑈𝑓𝑓𝑓𝑓
, 𝑈𝑈𝑓𝑓𝑓𝑓
− 𝑈𝑈𝑓𝑓𝑓𝑓
= 𝛼𝛼 + 𝛽𝛽𝑍𝑍𝑓𝑓𝑓𝑓 + 𝛿𝛿𝑓𝑓 + 𝛿𝛿𝑡𝑡 + 𝜀𝜀𝑓𝑓𝑡𝑡
𝑀𝑀
𝑋𝑋
𝑀𝑀
𝑋𝑋
𝑌𝑌𝑓𝑓𝑓𝑓 = 𝛼𝛼 + 𝛽𝛽 𝑈𝑈𝑓𝑓𝑓𝑓
, 𝑈𝑈𝑓𝑓𝑓𝑓
, 𝑈𝑈𝑓𝑓𝑓𝑓
− 𝑈𝑈𝑓𝑓𝑓𝑓
+ 𝛿𝛿𝑓𝑓 + 𝛿𝛿𝑡𝑡 + 𝜀𝜀𝑓𝑓𝑓𝑓
𝑀𝑀
𝑋𝑋
𝑀𝑀
𝑋𝑋
• 𝑈𝑈𝑓𝑓𝑓𝑓
, 𝑈𝑈𝑓𝑓𝑓𝑓
, 𝑈𝑈𝑓𝑓𝑓𝑓
− 𝑈𝑈𝑓𝑓𝑓𝑓
= firm production line position
• 𝑍𝑍𝑓𝑓𝑓𝑓 , 𝑌𝑌𝑓𝑓𝑓𝑓 = firm characteristics (determinants, correlates and
outcomes of production line position)
• 𝛿𝛿𝑓𝑓 , 𝛿𝛿𝑡𝑡 = firm FE, year FE
• Conservatively cluster errors by firm
29
Firm Productivity
• As firms become more productive, they export slightly more downstream,
import more upstream, and conduct more production stages (in China)
Dep variable:
Log Value Added per Worker
UX
UM
UM - UX
UM - UX
0.0006
[0.0012]
0.0067***
[0.0023]
0.0061**
[0.0026]
0.0067***
[0.0023]
UX
-0.9364***
[0.0090]
Observations
2
R
207,854
0.96
207,854
0.80
207,854
0.83
207,854
0.86
Log TFP Levinsohn-Petrin
-0.0010
[0.0011]
0.0123***
[0.0020]
0.0133***
[0.0023]
0.0124***
[0.0020]
UX
Observations
2
R
Firm FE, Year FE
-0.9363
[0.0091]
207,216
0.96
207,216
0.80
207,216
0.83
207,216
0.86
Y
Y
Y
Y
30
Firm Size
• As firms get bigger, they export slightly more downstream, import more
upstream, and conduct more production stages (in China)
Dep variable:
Log Sales
UX
UM
UM - UX
UM - UX
-0.0034*
[0.0018]
0.0286***
[0.0033]
0.0320***
[0.0037]
0.0288***
[0.0033]
UX
Observations
R2
Log Exports
-0.9375***
[0.0088]
214,256
0.96
214,256
0.80
214,256
0.83
214,256
0.86
-0.0067***
[0.0015]
0.0184***
[0.0018]
0.0251***
[0.0023]
0.0188***
[0.0018]
UX
Observations
R2
Log Employment
-0.9354***
[0.0088]
214,424
0.96
214,424
0.80
214,424
0.83
214,424
0.86
-0.0048**
[0.0023]
0.0277***
[0.0040]
0.0325***
[0.0045]
0.0280***
[0.0040]
UX
Observations
R2
Firm FE, Year FE
-0.9393***
[0.0087]
216,998
0.96
216,998
0.80
216,998
0.82
216,998
0.85
Y
Y
Y
Y
31
Firm Experience
• As firms age and gain experience, they export slightly more downstream,
import more upstream, and conduct more production stages (in China)
Dep variable:
UX
UM
UM - UX
UM - UX
Log (Age+1)
-0.0117**
[0.0058]
0.1363***
[0.0120]
0.1481***
[0.0132]
0.1371***
[0.0120]
UX
-0.9388***
[0.0087]
Observations
2
R
216,707
0.96
216,707
0.80
216,707
0.82
216,707
0.86
Log Cumulative Past Exports
-0.0002
[0.0002]
0.0031***
[0.0003]
0.0033***
[0.0003]
0.0031***
[0.0003]
UX
Observations
2
R
Firm FE, Year FE
-0.9394***
[0.0087]
216,998
0.96
216,998
0.80
216,998
0.82
216,998
0.85
Y
Y
Y
Y
32
Firm Experience
• Firms with more processing activity export slightly more downstream,
import more upstream, and conduct more production stages (in China)
Dep variable:
Log Cumulative Past Imports
UX
UM
UM - UX
UM - UX
-0.0002
[0.0002]
0.0046***
[0.0003]
0.0049***
[0.0004]
0.0046***
[0.0003]
UX
-0.9393***
[0.0087]
Observations
2
R
216,998
0.96
216,998
0.80
216,998
0.82
216,998
0.85
Processing Exports / Export
-0.0060
[0.0068]
0.1764***
[0.0103]
0.1824***
[0.0120]
0.1768***
[0.0103]
UX
Observations
2
R
Firm FE, Year FE
-0.9390***
[0.0087]
216,998
0.96
216,998
0.80
216,998
0.82
216,998
0.86
Y
Y
Y
Y
33
Firm Productivity: IV Strategy (Preliminary)
• Instrument firm productivity with proxies for exogenous
export demand and imported-input supply
• IV = initial product composition of firms’ export and import
portfolio + worldwide trade flows by product (sans China)
𝑋𝑋𝑓𝑓𝑓𝑓,𝑡𝑡=0
𝑀𝑀𝑓𝑓𝑓𝑓,𝑡𝑡=0
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑡𝑡 = ln �
𝑇𝑇𝑝𝑝𝑝𝑝 , 𝐼𝐼𝐼𝐼𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑓𝑓𝑡𝑡 = ln �
𝑇𝑇𝑝𝑝𝑝𝑝
𝑋𝑋
𝑀𝑀
𝑝𝑝 𝑓𝑓,𝑡𝑡=0
𝑝𝑝
𝑓𝑓,𝑡𝑡=0
• 𝑋𝑋𝑓𝑓𝑓𝑓,𝑡𝑡=0 , 𝑀𝑀𝑓𝑓𝑓𝑓,𝑡𝑡=0 = firm f’s exports and imports of product p at t=0
• 𝑋𝑋𝑓𝑓,𝑡𝑡=0 , 𝑀𝑀𝑓𝑓,𝑡𝑡=0 = firm f’s total exports and imports at t=0
• 𝑇𝑇𝑝𝑝𝑡𝑡 = worldwide trade in product p at time t, less Chinese exports
and imports of p
34
Firm Productivity: IV Results (Preliminary)
Dep variable:
Firm Productivity
Log Value Added per Worker
Export IV
0.1413***
[0.0184]
Import IV
-0.0424*
[0.0230]
Observations
Kleinberger-Paap F-stat
78,894
29.79
Log TFP Levinsohn-Petrin
UX
UM
UM - UX
-0.1420***
[0.0528]
0.1456*
[0.0817]
0.2876***
[0.0990]
78,894
78,894
78,894
-0.0884***
[0.0334]
0.0883*
[0.0519]
0.1766***
[0.0615]
Export IV
0.2186***
[0.0203]
Import IV
-0.0370
[0.0241]
Observations
Kleinberger-Paap F-stat
78,545
58.00
78,545
78,545
78,545
Y
Y
Y
Y
Firm FE, Year FE
35
Firm Fixed Costs
• When firms conduct more production stages (in China), they have higher
fixed production costs …
Dep variable:
Fixed Assets / Total Assets
UX
UM
UM - UX
UM - UX
-0.0011
[0.0046]
0.0220**
[0.0098]
0.0231**
[0.0103]
0.0221**
[0.0097]
UX
-0.9396***
[0.0087]
Observations
R2
216,921
0.96
216,921
0.79
216,921
0.82
216,921
0.85
Inventories / Total Assets
-0.0079
[0.0063]
0.0622***
[0.0119]
0.0700***
[0.0132]
0.0627***
[0.0119]
UX
-0.9395***
[0.0087]
Observations
R2
216,921
0.96
216,921
0.79
216,921
0.82
216,921
0.85
R&D Expenditure / Sales
0.0094
[0.0127]
0.0470**
[0.02340]
0.0376
[0.0242]
0.0463*
[0.0238]
UX
Observations
R2
Firm FE, Year FE
-0.9256***
[0.0122]
143,872
0.96
143,872
0.83
143,872
0.86
143,872
0.88
Y
Y
Y
Y
36
Firm Fixed Costs
• When firms conduct more production stages (in China), they have higher
fixed production costs … but same fixed distribution costs
Dep variable:
Advertising Expenditure / Sales
UX
UM
UM - UX
UM - UX
0.1122
[0.1239]
-0.0302
[0.1730]
-0.1424
[0.2148]
-0.0386
[0.1734]
UX
Observations
R2
Firm FE, Year FE
-0.9254***
[0.121]
144,974
0.96
144,974
0.83
144,974
0.86
144,974
0.88
Y
Y
Y
Y
37
Firm Production Inputs
• When firms conduct more production stages (in China), they purchase
more intermediate inputs … because they operate on a bigger scale
• UM-UX uncorrelated with share of imported inputs in total inputs
• firms with higher UM-UX conduct more production stages in-house and don’t
substitute domestic for foreign suppliers
• UX and UM proxy overall output and input upstreamness
Log Total Inputs
Dep variable:
UX
-0.0287**
[0.0135]
UM
0.0054
[0.0144]
-246.5
[980.1]
-480.9
[1155.9]
-479.4
[1159.1]
-249.5
[219.8]
-245.4
[234.3]
-252.9
[231.5]
0.0364***
[0.0053]
Log Sales
Observations
R2
-0.0050
[0.0095]
0.0359***
[0.0053]
UM - UX
Firm FE, Year FE
Imported Inputs / Total Inputs
0.0039
[0.0033]
0.8335***
[0.0152]
-103.5
[648.3]
Y
Y
Y
Y
Y
Y
Y
Y
214,424
0.87
214,424
0.87
214,424
0.87
214,424
0.94
216,746
0.16
216,746
0.16
216,746
0.16
216,746
0.16
38
Firm Value Added
• When firms conduct more production stages (in China), they have higher
value added … because they operate on a bigger scale
Log Value Added
Dep variable:
UX
-0.0382
[0.0275]
UM
-0.0011
[0.0296]
-0.0148
[0.0264]
0.0396***
[0.0122]
-0.0032
[0.0109]
0.0390***
[0.0122]
UM - UX
Log Sales
Firm FE, Year FE
Observations
R2
1.0981***
[0.0197]
Y
Y
Y
Y
214,424
0.70
214,424
0.70
214,424
0.70
214,424
0.75
39
Firm Profits
• When firms conduct more production stages (in China), they have higher
profits because they operate on a bigger scale, but same profit / sales
ratio
Log Profits
Dep variable:
UX
-0.0336
[0.0484]
UM
0.0479
[0.0526]
0.0221
[0.0497]
0.0869***
[0.0214]
0.0240
[0.0198]
0.0863***
[0.0214]
UM - UX
0.0779***
[0.0197]
Log Sales
Firm FE, Year FE
Observations
R2
1.587***
[0.0451]
Y
Y
Y
Y
Y
214,424
0.64
214,424
0.64
214,424
0.64
214,424
0.64
214,424
0.67
40
Conclusion
• New stylized facts about China’s position in global production
chains in 1992-2011
• Sharp rise in import upstreamness, stable export upstreamness,
rapid expansion in production stages conducted in China
• Production chain position an important feature of firm lifecycle
• Spanning more production stages generates higher value added
and profits, but requires higher sunk and fixed operation costs
• Firms expand into more production stages (in China) as they grow
bigger, more productive and more experienced
• Policy implications for developing countries
• Trade-enabled technology transfer
• Production chain position vs. value added vs. profits
41
Next Steps
• Better understand dynamics of firm life cycle
• Contribution of new sectors, dropped sectors and reallocations
across surviving sectors to change in production line position
• Nonlinearity of value added and profits along production chain
• Establish causal effects of firm size and productivity
• IV for firm size: Bartik export demand shocks, exchange-rate shocks
• IV for firm productivity: Bartik imported-input supply shock,
productivity of domestic input suppliers
• Reconcile firm dynamics with aggregate trends
• Contribution of firm entry, firm exit and surviving firms’ dynamics to
China’s global production line position in aggregate