Technical barriers to trade and export performance: Comparing exiting and staying firms

Abstract

Technical Barriers to Trade (TBTs) present a major challenge to exporters and policymakers. Prior studies have shown that TBTs induce the exit of exporters, but little is known about the differences of subsequent export performance between exiting and staying firms. We investigate the case of Chinese firms suffering TBT shocks in the US market with the PSM-DID method. The results show that exiting firms gain higher export growth than staying firms by exploring new markets more extensively and exploiting other existing markets more intensively. Besides, we also find that staying firms gain higher prices and higher quality than exiting firms by conforming to the higher standards after TBT shocks. Our findings suggest that exporters can survive tough TBT shocks by optimizing within-firm reallocations of resources across markets and products.

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