Trade Cost And Export Extensive Margin: Evidence From China

The recent development of heterogeneous firm model points out that exportexpansion is mainly along two margins: the intensive margin growth based on exportvolume and the extensive margin based on increase in export varieties. In contrast,extensive margin growth is more conducive to avoid fluctuations in export earnings, andenhance the diversity of product structure in the exporting country, promote the increasein total factor productivity, meanwhile reducing the risk of deteriorating terms of trade.The heterogeneous firm model also reveals promotion of trade costs on the extensivemargin is caused by productivity threshold effect. With the deepening of tradeliberalization, the decline in trade costs leads to the decrease in export zero profitproductivity thresholds, allowing the firms of exporting country whose productivity ishigher than the threshold to export gradually, leading to the increase of exporting firmsnumbers and the growth in extensive margin However, the assumption of existingheterogeneous firms model is too simple to fully explain the actual trade situation witheach passing day, which needs to relax the assumption to establish a new equilibriummodel. In addition, since the economic model after China’s reform and opening up gavebirth to a "trading" rather than "trade power", the transformation of trade liberalizationstrategy to find a new source of gains from trade is of greater practical significance.Based on the above issues, the thesis establishes theoretical models to comprehensivelyanalyze impact mechanism of different types of trade costs on export extensive margin incorporate, product, and market dimensions. Meanwhile, with the actual characteristics ofChinese exports, it studies timing and cross-sectional characteristics of export extensivemargin after the implementation of the trade liberalization strategy and conducts anempirical test for the above impact mechanism.The paper comprises seven chapters. The first chapter discusses the purpose andsignificance of research, main contents and thesis structure, and reviews relevantliterature. In this chapter, a series of innovative points are elicited. The second chapter istheoretical basis, which includes DFS products continuum model, Krugman leveldifference model, Falm vertical difference model and heterogeneous firm model such asMelitz and Kancs. In the third chapter, the influence of fixed trade cost at the firm level is researched, through combining the comparative advantage theory to heterogeneous firmsmodel. The result shows that fixed trade cost makes much more influence on exportproductivity threshold in comparative advantage department, the numbers of export firmincrease faster. At the market level, through the establishment the relationship betweenncome threshold of destination and fixed trade cost, it finds that the decline of fixed tradecost gives rise to the reducing of destination income threshold, and further more makesthe scale of trade partner expand. At the product level, through relaxing the Ricardiancontinuous differentiation product assumptions and introducing the concept of "non-tradeproduct", remaining the other conditions unchanged, the export growth of non-tradeproduct depends on variable trade cost reduction. Given numbers of sample points,relative productivity curve slope determines the effects of variable trade cost.Through organizing the literature, it is also found that there is little research onChinese extensive margin during the process of trade liberalization. For supplementary,the fourth and fifth chapters respectively describe the dynamic change of trade costs andmacroscopic and microscopic characteristics of export extensive margin after China’sreform and opening up. The study shows that the implementation of trade liberalizationplays a more significant role in reduction of variable trade costs such as tariff and a lesserrole in the fixed trade cost. With the deepening of trade liberalization strategy, theextensive margin accounts for a smaller proportion in China’s export growth, and mainlydepends on the old market expansion in both bilateral and multilateral trade framework.For Different destination countries, it contributes more to the developing countries, andthe exporting varieties also change with trade costs declining.The sixth chapter conducts an empirical test for impact mechanism. Using theexporting micro data from1997to2007, it shows that the trade costs have negativeimpact on the number of export from the enterprise level. The firm heterogeneity is largerin calculated sectors, and a slight decline of trade costs is difficult to promote thecontinuous growth of the extensive margin. The situation in comparative advantagesector is better. For the market level, the change of the income of destination country andextensive margin is in the same direction, but the role of income is weakening over time.With trade cost declining and price index in destination country rising, the extensivemargin grows, but the impact of the latter is very weak. Finally, the chapter predicts the specific role of the different types of trade cost in extensive margin. It shows that theimpact of fixed trade cost is even bigger. Comparing to new destination, the extensivemargin of new product categories is more dependent on fixed trade costs.Chapter seven makes a summary for the paper, provides the policy and suggestionsuch as stimulating domestic demand, adjusting the path of trade liberalization andfocuing on product innovation, and points out the further research directions.