Study On How Export Fixed Input Costs Affect The Extensive Margin

After decades of ongoing negotiations on tariff concessions, the world’s overall tariff level has dropped significantly, trade liberalization has already reached a high level, its further development depends on the degree of progress made by countries who deepen economic liberalization and multilateral negotiations. While export fixed input costs and regulatory protection from the technical barriers have become the main remaining obstacles. In recent years, under the background of sluggish progress on trade liberalization cooperation, APEC, WTO and other international economic organizations and governments emphasis more and more on trade facilitation, which can lower trade costs and promote trade growth, and scholars also put more and more attention to this field. Large number of empirical studies have shown the important role of trade facilitation in reducing trade costs and promote trade growth. How trade costs affect trade is an important issue to understand the structure of world trade and economic development. Heterogeneous firm trade theory suggests that reducing export costs will affect behavior of export firms, thus making the entire trade and social welfare change. The gravity model used in the past empirical research has changed after the introduction of firm heterogeneity.The impact of trade costs on trade differ significantly due to different parameters and different industrial structures. Elasticity of substitution and heterogeneity parameter are the key parameters of market structure, its presence has changed the previous interpretation of the gravity model.The impact of reducing trade costs on trade plays the role through two channels of the intensive margin and extended marginal.Thirty years of reform and opening up, China ties with the world increasingly close.The growth of export is rapid and the export share of total GNP is also rising. But behind the explosive growth of China’s exports, we can not turn a blind eye on China’s fragility in resisting economic shocks. Empirical researches on the heterogeneous firms have found the importance role of extensive margin against the impact of economic fluctuations, and in promoting the steady growth of trade,and its role in promoting trade more obviously,especially for developing countries. The heterogeneous firm trade theory suggests that market-specific export fixed input costs not only affects whether firms enter the export market, but also affects the multi-product export firms’export product categories. All these above are manifested as changes in extensive margin.This paper aims to analyze how export fixed input costs affect China’s manufacturing industry level trade extensive margin from the perspective of trade facilitation. Specifically, firstly,the paper analyzes the basic situation of China’s trade facilitation development and use questionnaires, comparative analysis and other methods to analyze deeply the conditions and difficulties faced by China’s trade facilitation development. Secondly, based on Melitz (2003) heterogeneous firm trade model, analyze mechanisms on how trade facilitation affect trade, and then draw Kancs (2007) and Chaney (2008) heterogeneous firm trade theory, construct the theoretical framework on how export fixed input costs affect the trade extensive margin,then derive the extensive margin elasticity and the total export elasticity with respect to export fixed input costs and compare the difference of these two elasticities. Finally, according to the derivation of the above theoretical model, this paper obtains the structure gravity model,and then use this model and industry-level data to estimate the structural parameters (the elasticity of substitution and heterogeneity parameters). Based on these parameters,this paper simulates and calculate the extent on how export fixed input costs affect the total exports and the extensive margin of different industries. The main conclusions of this paper areFirstly, China’s policies of promoting trade facilitation and the related regulations started late, but developed rapidly; hardware infrastructure is more advanced, but the different management departments have not fully adopted international data and communications technology standards,thus technical conditions need to be further improved; government lacks drive force on trade facilitation and lacks the strong lead agency which can promote the uniform implementation of trade facilitation measures; there are coordination difficulties between the various stakeholders;lack of motivation on institutional reform related to trade facilitation;government support international cooperation on trade facilitation, but the depth of international cooperation needs to be further increased.Second, for most industries (22industries out of29industries), the gravity model coefficients estimation are consistent with theoretical expectations.. Among them, there are15industrial in which export fixed input costs have a significant negative impact on bilateral exports.Among all these15industrial, who is most affected by export fixed input costs is2222service activities related to printing,who is least affected is2720manufacture of basic precious and non-ferrous metals; who is mostly affected by multilateral resistance is1541manufacture of bakery products, who is least affected is2101manufacture of pulp, paper and paperboard.Thirdly, the estimation of structural parameters for10manufacturing industries are consistent with theoretical expectations, that is to say,σ is significantly greater than1, and also γ is greater than σplus1. Among them, the range of substitution elasticity is between2.5-9.76, the average is6.13, the maximum value of the industry is the1554manufacture of soft drinks; production of mineral waters (9.76), the minimum value of the industry is2101manufacture of pulp, paper and paperboard (2.51). So we can conclude that the elasticity of substitution of goods in different industries are very different, indicating that there is a big difference about the impact of trade cost on export among different industries. The range of heterogeneity parameters is between3.60-28.2, the average is11.88, the largest is1554manufacture of soft drinks; production of mineral waters (28.17); smallest is the2101manufacture of pulp, paper and paperboard (3.60).So we can conclude that the concentration of different industries are very different, which means that the impact of trade cost on trade was not only affected by the elasticity of substitution but also be affected by heterogeneity parameter.Fourthly, the theoretical model shows that the extensive margin elasticity and the total export elasticity with respect to export fixed input costs are determined by the elasticity of substitution and heterogeneity parameter together, the smaller the elasticity of substitution and the greater the heterogeneity parameter, the greater that fixed input costs of export affect the extensive margin and the total exports. Calculate the extensive margin elasticity and the total export elasticity with respect to export fixed input costs,we found:the extensive margin elasticity is higher than the total export elasticity, we conclude the reason is that the total export elasticity is also affected by the intensive margin; the industry whose extensive margin elasticity (the total export elasticity)with respect to export fixed input costs is largest is2222service activities related to printing, and its extensive margin elasticity (the total export elasticity) is3.4(2.4), the minimum is2692manufacture of refractory ceramic products,and its extensive margin elasticity (the total export elasticity) is1.262(0.262), the former’s extensive margin elasticity(the total export elasticity)is almost3(10) times greater than the latter’s. This shows that the decline in export fixed input costs would bring greatly difference for different industries. The lower the substitution elasticity and the industry concentration,the greater that the decline of export fixed input costs would affect the extensive margin elasticity and the total export elasticity, and vice versa.Fifthly, the export fixed input costs decreased by10%would promote the growth of the extensive margin, and the scope of the growth is betweent14.22%-43.08%,and the most profitable industry is2222reproduction of recorded media (43.08%), and the smallest is2692manufacture of refractory ceramic products(14.22%). The profit of the extensive margin of the10industries in average is28.89%. While,the export fixed input costs decreased by10%would also promote the growth of the total export, and the scope of the growth is between2.8%-28.8%,and the most profitable industry is2222reproduction of recorded media (28.8%), the smallest is the2692manufacture of refractory ceramic products (2.8%). The profit of the total export of the10industries in average is16%. This shows that the export fixed input costs put more effect on the extensive margin than on the total export.In addition, the decline in exports fixed input costs would have different effect on different industries,and compared with the total extensive margin and the total export in country level,there is a greater change in industry level. This shows that trade policy will have different effects on different industries, thereby affecting the market structure.Innovation of this paper is reflected in the following aspects:Firstly, based on Melitz (2003) heterogeneous firm trade model, analyze mechanisms on how trade facilitation affect of trade,thereby, make the mechanism theoretically clear.Secondly, by drawing Kancs (2007) and Chaney (2008) heterogeneous firm trade theory, construct the theoretical framework on how export fixed input costs affect the trade extensive margin,then derive the extensive margin elasticity and the total export elasticity with respect to export fixed input costs,thereby,make the mechanism that how export fixed input costs affect the trade extensive margin and the total export theoretically clearThirdly, analyze the export of29manufacturing industries, and estimate elasticity of substitution and heterogeneity parameter for10different industries. Based on the analysis above, analyze the extensive margin elasticity and the total export elasticity with respect to export fixed input costs, analog the effect that export fixed input costs decreased by10%have on the the extensive margin and total exports. With this, we can have a deeper insight on how export fixed input costs affect trade,so as to provide a wealth of policy implications for optimizing the path of China’s trade growth.