Import Competition And Total Factor Productivity:Evidence From China

In the context of the economy entering a period of new normal,China’s government has put forward the supply-side structural reform,its essence is to improve total factor productivity.With building a new open economic system and developing a new pattern of all-out opening to the outside world,China will implement more active import policies.Import liberalization will make domestic firms face greater pressure from foreign competition.It is of great theoretical and practical significance to discuss how foreign competition induced by import liberalization impacts total factor productivity in order to promote the transformation of China’s economic structure and implement the strategy of innovation-driven development,so it is a subject worthy of further study.Using rich firm-level data from Chinese manufacturing sectors,this dissertation examines the mechanisms through which import competition impacts total factor productivity.This dissertation mainly comprises three parts.The first part,in the third chapter,examines the impact of import competition on potential productivity gains through reallocation of resources.The second part,in the third chapter,examines the impact of import competition on potential productivity gains through reallocation of resources.The second part,in the fourth chapter,examines the impact of import competition on productivity through entry and exit of firms.The third part,in the fifth chapter,examines the impact of import competition on productivity through conditions of market competition.According to the empirical analysis,the sixth chapter gives the conclusions and policy proposals.Firstly,the import competition induced by trade liberalization reduces the resource misallocation,and in turn increases the potential productivity through reallocation of resources.Based on micro-data on manufacturing firms to measure manufacturing industry potential productivity gains from the efficient allocation of resources,then estimate the effects of import competition on industry potential productivity gains.The result shows that import competition has a significant positive effect on manufacturing industry potential productivity gains,import competition increases 1%,industry potential productivity gains increases 0.055%.Further,explore the mechanism by which import competition affects potential productivity gain.Econometric results show that reallocation of resources is an important channel through which import competition increases potential productivity gain.Controlling the other forces,and changing the relevant parameters and addressing the concern of the possible endogeneity of import competition,the results are robust.Secondly,with the higher level of China’s trade liberalization,import competition induced by trade liberalization becomes an important force affecting firm turnover and in turn aggregate productivity.Using rich firm-level panel data from Chinese manufacturing sectors,we find that Import competition has a heterogeneous impact on firms with different productivity and size,and more likely to increase exit of firms that have lower productivity and smaller size.Import competition doesn’t significantly affects entry of firms,and the probability of entry is higher for being the more productive and larger firms.Our results imply that firm’s turnover is mainly entry and exit of lower productive and smaller firms in the manufacturing industry.Furthermore,we examine the effects of import competition on the productivity of surviving firms,we find that import competition not only directly improve the productivity of surviving firms,but also indirectly increase the productivity of surviving firms through firm turnover.Based on DOP productivity decomposition to break down aggregate increases in productivity,we also examine the industry-level effects of import competition on aggregate productivity changes.We provide the evidence that import competition significantly contributes to aggregate productivity growth by exiting firm at the extensive margin.The conclusion of this paper suggests that,from both micro and aggregate perspective,increased import competition induced by China’s trade liberalization has an important realistic significance for eliminating the least efficient firms and outdated production capacity.Thirdly,International competition induced by trade liberalization is an important force influencing the domestic market structure and productivity.Using the micro data of China’s manufacturing sectors;this paper examines the impact of import competition on market competition at the manufacturing level.The results show that import competition has a significantly positive effect on market competition,thus providing the evidence for pro-competitive effects of increased import competition in the short run.Furthermore,we find that pro-competitive effects from increased import competition are not always established in the long run,and import competition strongly intensifies market competition in the highly concentrated sectors.Finally,we analyze the effects of import competition on firm’s productivity through market competition channel,econometric results show that import competition has a nonlinear effect on firm’s productivity through market competition.Specifically,when the degree of market competition is low,import competition increases firm productivity,and import competition reduces firm productivity when the degree of market competition is higher.We check and find our results robust to a range of robustness tests.The research conclusions mean important policy implications.First,actively promote trade liberalization,by strengthening import competition to improve the efficiency of resource allocation and the potential productivity gains.Second,by intensifying import competition to eliminate lower efficient and smaller firms,promote dynamic reallocation of resources and enhance aggregate productivity growth at the sectors.Third,by increasing import competition to reduce industry’s monopolies and market power,building up the more competitive market structure and intensify the conditions of market competition,in turn increase innovation and productivity of firms.All in all,it is supposed to actively promote import liberalization and increase technology innovations and productivity of domestic firms by intensifying import competition.