Factor Intensity, Product Switching, and Productivity: Evidence from Chinese Exporters

This paper analyzes the causal relations between …rms’ productivity, factor intensity and export participation. Using propensity score matching techniques and …rm-level panel data for Chinese manufacturing …rms over the 1998-2007 period, we …nd strong evidence of domestic …rms self-selecting into export markets with higher productivity ex ante, and enhanced productivity ex post. No such pattern is observed among foreign-invested …rms. We also …nd that both domestic and foreign new exporters exploit China’s low labor costs and specialize in their core competence, that is, …rms become less capital-intensive after exporting, relative to the matched non-exporting counterparts in the same industry. To rationalize these results that contrast with most …ndings in the existing literature, we develop a variant of the multi-product model of Bernard, Redding, and Schott (2010) to consider varying capital intensity across products. Using transaction-level export data, we …find evidence that Chinese exporters add new products that are more labor-intensive than existing products and drop products that are less labor- intensive, supporting the model predictions. Firms with a bigger decline in capital intensity after exporting are found to have a larger increase in measured TFP.

Project ID
Yue Ma
Heiwai Tang
Yifan Zhang