DP9166 WTO Accession and Performance of Chinese Manufacturing Firms

Author(s): Loren Brandt , Johannes Van Biesebroeck , Luhang Wang , Yifan Zhang

Publication Date: October 2012

Keyword(s): China , Productivity , Tariff , Trade liberalization

JEL(s): F13 , F14

Programme Areas: Industrial Organization , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP9166.asp

China’s policy-makers argued that WTO accession and the accompanying trade liberalization would have a beneficial impact on the domestic economy. China’s import tariffs differed tremendously across industry in the earlier years, but converged to an almost uniform low level after WTO entry. We exploit sectoral variation in the extent of tariff reduction to identify the impact of increased import competition on firm performance and its contribution to the significant productivity growth over the 1995–2007 period. We find evidence of strong downward pressure on prices and mark-ups, but limited evidence that imports took away market share from domestic firms. Furthermore, much of the effects on sectoral productivity come from changes at the extensive margin. Sectors that liberalized most tend to attract especially productive entrants, private firms in particular, which can be rationalized by an increase in the minimum productivity threshold needed to survive in these sectors.