Heterogeneous Fixed Export Cost And Firm-Level Export Decision

Based on firm heterogeneity trade theory, the research studies the relationship between heterogeneous fixed export cost, productivity and firm-level decision from both theoretical and empirical perspectives, explores joint effects of fixed export cost and productivity on firm-level decision and provides a new explanation for "Productivity Paradox" by extending basic assumption of Melitz(2003) model and introducing heterogeneous fixed export cost. Firstly, literature related to productivity, fixed export cost and firms’ export decision is reviewed from both domestic and foreign perspectives. Secondly, it calculates firm-level TFP, constructs fixed export cost index based on micro data of China between 2002 and 2006, makes some statistics description of stylized facts in firm’s export behavior, and analyzes the distributed characteristics of productivity and fixed export cost faced by firms in each region and industry.Next, the research extends Melitz(2003) model by referring to HMY model and Luis Castro(2012), puts forward three hypothesizes which have been substantiated theoretically, investigates the joint effects of fixed export cost and productivity on firm-level decision empirically and substantiates above hypothesizes. Some conclusions are made. Both the negative effect of fixed export cost and the positive effect of total factor productivity on export propensity are significant; specially, in comparison with different productivity-level exporters, those high-productivity non-exporters face higher fixed export cost; given a higher productivity, negative effect of fixed export cost on firms’ export behavior becomes weaker, but the substitution effect between FEC and TFP is asymmetric. What’s more, after grouping all exporters based on industry-region-year, we find that both the higher fixed export cost and larger productivity dispersion raise the average export volume in each group. Furthermore, robustness check is conducted for each conclusion and the results remain same. Finally, it makes some basic summery of conclusions and gives several policy suggestions in terms of how to enhance firms’ productivity and how to reduce fixed export cost faced by each firm so as to promote firms’ export activities and enhance their competitive power in international market.