Import liberalization and export product mix

Abstract

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.

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