trade environment changes and the expansion of private chinese exports

Trade Environment Changes and the Expansion of Private Chinese ExportsTrade Environment Changes and the Expansion of Private Chinese Exports

Trade Environment Changes and theExpansion of Private Chinese Exports

Deborah L. SwensonUniversity of California, DavisDepartment of EconomicsOne Shields AvenueDavis, CA [email protected]

Asian Economic Papers 12:1 © 2013 The Earth Institute at Columbia University and the Massachusetts

Institute of Technology

AbstractThis paper examines how changes in China’s trade environmentcontributed to the rise in private firm exports. Data from 1997 to2009 reveal that both increased exposure to multinational firmexports in related industries and expansion in private firm im-ports at the broad industry level contributed to private firm ex-port growth. The benefits of multinational exposure are particu-larly strong for consumer goods, and the benefits of private firmprovincial imports are most strongly linked to private firm exportsof capital goods and intermediate inputs. In contrast, special eco-nomic zones and technology zones did not increase private firmexports. Further investigation of the export transaction data atthe product level suggest that Chinese private firm export capa-bility was increased by (1) improvements in product quality thatwas fostered by proximity to multinational firms; and (2) improvedaccess to imported intermediate inputs.

1. Introduction

China’s exceptional export growth has many notable fac-ets. It is well understood that foreign ªrms are large actorsin the growth of Chinese trade, and that a substantial com-ponent of this trade growth has been underpinned by sus-tained expansion of processing trade exports. In contrast,the export activities of private Chinese ªrms have receivedfar less attention. This is surprising, as private ªrm export-ers have managed to markedly increase their trade share,and have done so primarily through their participation inordinary exports rather than processing trade.

As Chinese exporters have moved into export industriesthat are more sophisticated than those typically observedfor countries that are otherwise similar to China, a debate

has grown about China’s level of export capability and sophistication (Rodrik 2006;Schott 2008; Kiyota 2010). Jarreau and Poncet (2012) show that Chinese provinceswith growing export sophistication, and growth in private ªrm ordinary trade so-phistication in particular, have experienced more rapid increases in per capita in-comes than provinces that were less successful in advancing their export sophistica-tion. Because the activities of private ªrms will be an important factor in sustainingChina’s growth in the future, it is important to understand the factors that assistthese activities.1 To this end, this paper investigates how an advantage in location,changes in external exposure, trade policy interventions, and other factors haveinºuenced the export capability of Chinese private ªrms.

Initially, we ask whether multinational ªrm presence in China has altered the tradeenvironment and the capability of local ªrms. There are many reasons to expect thatmultinationals will have a positive inºuence on local ªrm export capability. For ex-ample, exposure to MNCs may provide informational spillovers about productiontechniques, new technologies, new products, or destination market opportunities,which, in turn, expand the range of products that local ªrms may offer for export.2

Consistent with the notion of positive spillovers, Figure 1 documents that privateªrm exports from China have risen in tandem with the growth in export activities offoreign enterprises. National trends of this sort are not sufªcient to establish the im-portance of multinational ªrm spillovers, however, because the coincidence oftrends could also reºect time-varying trends that were facilitated by China’s entry tothe WTO in 2001, or other national developments that assisted foreign ªrm and pri-vate ªrm exports. In addition, even if multinational ªrms generate positive spill-overs to private ªrms, the beneªts of proximity may also be accompanied by less fa-vorable developments that reduce local ªrm exports. For this reason, the net effectof multinational presence may instead be negative if multinational ªrms cause

109 Asian Economic Papers

Trade Environment Changes and the Expansion of Private Chinese Exports

1 The World Bank report, China 2030, which was produced with the assistance from China’sMinistry of Finance and the Development Research Center of the State Council identiªesstrategies for sustaining China’s progress. The ªrst strategic recommendation (implementstructural reforms to strengthen the foundations for a market-based economy) acknowl-edges the importance of developing the private sector.

2 Blomstrom and Kokko (1998), Navaretti and Venables (2004), and Gorg and Greenaway(2004) summarize the literature on multinational ªrm spillovers. Aitken, Hanson, and Harri-son (1997), Greenaway, Sousa, and Wakelin (2004), and Ma (2006) ªnd that increases in mul-tinational ªrm proximity elevate local ªrm export probabilities or export volumes, andSwenson (2008) notes an association between multinational presence and the creation ofnew trade at the extensive margin. Similarly, Head, Jing, and Swenson (2010) ªnd that theexpansion of large retailers in China is associated with increases in export capabilities.Finally, Mayeneris and Poncet (2011) ªnd that private Chinese ªrms are more likely to initi-ate exports to destinations that are served by local multinational corporations.

congestion in local factor markets, or if multinational ªrms directly compete withlocal ªrms in product markets.3 Due to the mixture of beneªts and harms broughtby multinational ªrms, it is important to turn to empirical examination to deter-mine the connection between multinational exposure and developments in privateªrm exports.

Beyond multinational spillovers, it is worth asking whether China’s increasingopenness to imports, and the expansion of private ªrm imports in particular, havefacilitated the growth of private ªrm exports. In general, it is understood that ªrm-level increases in import volume and/or variety may improve ªrm productivity andproduct offerings. This insight is illustrated by Ethier’s (1982) demonstration that,holding input level constant, increased input variety raises output. Firms that im-port intermediate inputs may beneªt from further productivity gains if there arecomplementarities between domestic and foreign inputs, or if new technologies are



3 Negative multinational spillovers are observed in work by Aitken and Harrison (1999). Sim-ilarly, in studying research and development spillovers and Chinese ªrm total factor pro-ductivity, Fu and Gong (2009) note the tension between beneªcial multinational corporationspillovers versus the detrimental effects due to competition.

Figure 1. Chinese export volume by ªrm and trade type

Source: Author’s calculations.

Note: Based on Chinese Custom data. Total export represents the sum of all Chinese export transactions. Multinational export is generated

by summing the exports of foreign invested enterprises, and all joint venture ªrms that included a foreign partner. The private ªrm series

includes all export transactions shipped by private and collective ªrms. Total ordinary export and private ªrm ordinary export is the sum

of exports that did not involve processing trade.

embodied in foreign input varieties. In support of this idea, the positive connectionbetween ªrm productivity and imported inputs has now been documented in manycases, including Kasahara and Rodrigue (2008) for Chile, Halpern, Koren, and Szeidl(2011) for Hungary, Smeets and Warzynski (2010) for Denmark, and Bas andStrauss-Kahn (2011) for France.4 Imported intermediate inputs may play a specialrole in China, however, if access to imported inputs alleviates ªrm sourcing con-straints that are caused by interprovincial barriers to the free ºow of goods and in-puts.5 Indeed, Feng, Li, and Swenson (2012) ªnd that use of imported inputs ele-vates the level and probability of export by private Chinese ªrms, and that the effectis strongest in more technology-intensive industries. For this reason, the analysis oflocal ªrm private exports also includes measures of same-industry imports at theprovincial level.

Finally, policy interventions are another factor that may differentially affect tradeopportunities in different cities or provinces of China. Whereas the creation of spe-cial economic zones was initially limited to a small number of cities and test regions,in the last decade there has been a dramatic increase in the areas of China that areincluded in special economic zones and in the number of cities that offer some formof high technology zone.

Because special economic zones and many technology zones included policy provi-sions that encouraged ªrm export, it might be expected that private ªrm exportwould have ºourished in cities that were covered by these interventions. Becausespecial economic zones and technology zones were also open to foreign ªrms, how-ever, and may have been better suited to the activities of foreign invested enter-prises, the effect of these interventions on private ªrm export ability is not clear.For example, due to differences in technological ability, it is likely that technologyzones were less open to private ªrms than they were to foreign multinationals.6

If so, private ªrms would not have qualiªed for the technology zone beneªts,though they would have suffered if the entry of multinational ªrms to the zoneselevated factor costs, and caused congestion in the local infrastructure. Thus,understanding the evolution in trade also requires controls for changes in the tradepolicy environment.



4 Related evidence from trade liberalizations suggests that ªrm productivity is increased viachannels related to imported intermediate inputs, as in Amiti and Konings (2007), Goldberget al. (2010), and Bas (2012).

5 The importance of interprovincial trade barriers is suggested by results in Young (2000),Poncet (2005), and Amiti and Javorcik (2008).

6 Brambilla (2009) provides evidence from a 2000 World Bank survey that showed multina-tionals in China engaged in substantially more new product development activity than didprivate ªrms.

The analysis in this paper proceeds in two stages. In the ªrst stage, I test how thelevel of private ªrm exports at the city-industry level responded to changes inmultinational exposure, openness to imports by private ªrms, and the policy envi-ronment as captured by city inclusion within special economic zones, or in cityprovision of high technology zones. The results suggest that growth in same-H2multinational exports or same-industry private imports were associated with theexpansion of exports by local Chinese ªrms. If the data are disaggregated by regioninstead of city, the general results are similar, although the strength of the effectsdiffers by export destination. In contrast, when private ªrm export responses arebroken down by goods type, it appears that private ªrm imports were particularlyhelpful in expanding private ªrm exports of intermediate or capital goods, whereasmultinational ªrm proximity exerted a stronger positive effect on private ªrmexports of consumer goods.

To interpret these results, the second stage of the analysis turns to the data on theexport transactions of individual private ªrms. In particular, I explore how exportprices and the survival probabilities for new transactions are related to local open-ness to imported inputs, and to changes in the density of multinational ªrm con-tacts. After controlling for economic factors that inºuence these outcomes, such asdestination country GDP and GDP per capita, as well as full sets of product–countrydestination controls for time invariant factors, I am able to document that privateªrms were able to sell their products for higher prices when they were surroundedby a greater mass of multinational export activity, or were exposed to a greater localvolume of private ªrm imports. The general prices and the prices of private ªrm in-termediate inputs and capital goods are also higher if the products are exportedfrom a city in a special economic zone, or if the city offers a high technology zone.Based on export destination, these price associations are stronger for private exportsdestined for locations within Asia, rather than outside Asia. Finally, the results showthat newly introduced private export transactions beneªt from improved survivalprobabilities, when the transaction is introduced in a location that offers greater ex-posure to multinational ªrm exports, or higher local imports of same-industry prod-ucts. In contrast, the survival rates of new transactions are differentially affected bythe trade policy environment. Although new transactions launched by cities withtechnology zones have greater survival probabilities, new transaction survival prob-abilities are depressed for transactions that were initiated from within special eco-nomic zones.

The remainder of this paper is organized as follows. First, to provide context, Sec-tion 2 discusses salient developments in the markets for Chinese private exports,and describes the creation of the data set. Section 3 provides an analysis that



is based on private ªrm export data at the city–industry level. To gain betterinsight into the city–industry results, Section 4 examines how individual exporttransaction characteristics were related to the trade and policy environment.Section 5 offers conclusions.

2. Developments in Chinese private exports

The empirical work in this paper analyzes Chinese trade transactions data collectedby the Customs General Administration of the People’s Republic over the years1997 to 2009.7 Although the data report export transactions at the Chinese 8-digitlevel (H8), the regression analysis follows the development of private Chineseexports at the city-level distinguished by goods type, H2 industry, and ultimatedestination.8 Thus, the data are formed by taking the original product-levelexport data for private ªrms, and forming aggregations across geographic and in-dustry dimensions. To learn about the good’s ultimate use, the product level trans-actions are attributed to groups: primary good, intermediate good, capital good, orconsumer good.9

Figure 2 illustrates the relative contribution of each good by type to the exports ofprivate Chinese ªrms. The data show that exports of consumer goods were the largemajority of private ªrm exports in 1997, with a share just over 80 percent. This sharedeclined over time as the relative importance of intermediate goods exports andcapital goods exports rose. Indeed, the growth of intermediates exports was espe-cially rapid and, by 2007, the share of exports attributable to intermediates sur-passed consumer goods exports.10 Finally, the data show that primary goods haverepresented a negligible and shrinking share of private ªrm export. Thus the analy-sis from this point on excludes private ªrm exports of primary goods. In addition,because the export of primary goods is tied to comparative advantages due to loca-tion in endowments and natural amenities, the role of multinational ªrm spillovers,



7 The data were used under license to the CID at the University of California, Davis.

8 H8 codes refer to products, and H2 codes refer to industries. For example, H8 codes85426000 and 85299020 refer to the products Hybrid Integrated Circuit and Handheld Wire-less Telephone Parts, respectively. Both products are part of the two-digit H2 sector 85,which encompasses all electrical machinery and parts.

9 The assignment of goods to the types (capital, intermediate, consumer) are based onthe Broad Economic Category (BEC) codes provided by the United Nations and describedat http://unstats.un.org/unsd/tradekb/Knowledgebase/Intermediate-Goods-in-Trade-Statistics.

10 In 2008 and 2009, the consumer exports share rose slightly above that due to intermediatesexports, though the changes may have been driven by the ªnancial crisis and the sharp con-traction of production chain activities.

or beneªts due to the utilization of imported inputs, are not likely to have a mean-ingful effect on most primary goods exports.

After the transactions data are assigned to product types, the transactions areclassiªed by destination region. A ªrst distinction on this dimension is whetherproducts are exported to the core Asian locations (deªned as Hong Kong, Japan,Korea, Taiwan, Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam,Macao), or elsewhere. Transactions shipped outside of core Asian locations were as-signed to six regional groups (Other Asia, Africa, Europe, North America [UnitedStates, Canada, and Mexico], South and Latin America, and Australia/NewZealand/Oceana). The data in Tables 1 and 2 document the importance of Asia as adestination for private ªrm exports. Based on transaction frequency, 41 percent ofprivate exports in 1997 went to Asian core locations and the value of those transac-tions constituted almost 76 percent of all private ªrm export value. By 2009, al-though the share of transactions destined for core Asian locations had declined to18 percent of all transactions, they still represented one-third of all private ªrm ex-port value. Of the non–core Asia private ªrm exports, the majority of private ªrmexport transactions and the majority of private ªrm export value were directed to-ward North America and Europe. Over the 1997–2009 period, however, the impor-tance of Europe increased and the importance of North America declined as privateªrm entry began in North America ªrst, before expanding in Europe.



Figure 2. Chinese private ªrm exports by goods type


Note: Based on Chinese Custom data.

Following the assignment of goods to product type (e.g., intermediate, capital con-sumer good), and the assignment of export destination countries to region or desti-nation, all city-level H8 product transactions are aggregated to form city-level two-digit H2 industry measures that are categorized by product type and destination.For example, all city-level H8 consumer goods transactions destined for Africa areaggregated to form a city-level measure of consumer goods exports in an H2 sectorthat were shipped to Africa. Similar aggregations are performed for city-level capital



Table 1. Private city–H2 export transactions: Frequency by destination

Outside of Core Asia(% of non–Core Asia observations)

Year ObservationsCore Asia(% of observations)

OtherAsia Africa Europe

South & LatinAmerica

NorthAmerica

Australia/NZ/Oceana

1997 1,673 41.1 7.72 4.97 37.06 5.89 36.1 8.221998 2,339 33.2 9.09 5.89 36.1 8.13 32.8 8.001999 2,857 31.8 8.21 7.07 32.4 7.71 34.92 9.692000 5,618 30.3 11.1 8.09 30.1 8.91 31.7 10.12001 7,998 34.3 9.66 8.67 32.1 8.60 30.7 10.32002 12,704 28.6 10.1 9.22 30.6 8.58 30.0 11.52003 18,136 29.4 9.87 10.6 29.9 8.25 29.4 12.02004 26,149 27.2 9.91 10.9 29.4 9.28 27.8 12.72005 33,254 24.8 10.3 11.3 30.0 9.90 26.7 12.82006 38,874 23.0 10.2 12.2 28.2 10.8 25.9 12.72007 42,896 20.6 11.0 12.4 28.1 11.2 24.4 12.92008 45,331 19.2 11.1 13.0 27.3 12.0 23.8 12.82009 46,631 18.4 12.1 13.6 26.1 12.2 23.1 12.9


Note: Core Asia is deªned as Hong Kong, Japan, Korea, Taiwan, Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam,

and Macao.

Table 2. Private city–H2 export transactions: Value share by destination

Core Asia(% of privateexport value)

Outside of Core Asia(% of non–Core Asia private export value)

Year ObservationsOtherAsia Africa Europe

South & LatinAmerica

NorthAmerica

Australia/NZ/Oceana

1997 1,673 75.6 21.5 0.50 28.7 0.88 46.9 1.521998 2,339 67.0 17.6 0.35 31.0 2.13 47.6 1.331999 2,857 63.3 18.3 0.85 34.3 1.82 42.7 1.962000 5,618 57.4 25.1 1.15 32.9 1.61 37.5 1.652001 7,998 54.5 21.4 1.85 39.7 1.68 34.0 1.272002 12,704 47.4 21.9 1.96 36.4 1.22 36.53 1.972003 18,136 46.8 20.8 2.25 41.0 1.32 32.8 1.722004 26,149 32.6 18.8 5.62 39.49 4.35 29.0 2.762005 33,254 28.0 18.1 5.85 39.1 4.51 29.74 2.772006 38,874 35.2 20.3 3.19 43.6 2.88 28.4 1.642007 42,896 33.3 23.4 3.84 43.2 3.23 24.76 1.562008 45,331 32.1 24.1 4.14 42.35 4.36 23.4 1.682009 46,631 32.8 26.6 4.64 38.7 4.16 23.9 2.03


Note: Core Asia is deªned as Hong Kong, Japan, Korea, Taiwan, Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam,

and Macao.

and intermediate goods exports by H2 sector, and each of these measures is aggre-gated to the export region level.

3. Estimation based on city–industry data

This paper conducts two tests in turn. The ªrst set of regressions uses aggregatedata on private ªrm exports at the city–industry–destination level to study how lo-cal ªrm exposure to multinational ªrms, the expansion of local private intermediateinput imports, and the local availability of special economic zones or city technol-ogy zones contributed to the expansion of private Chinese ªrm exports. Next, toprovide better insight into the results from the aggregate trade data, the second partof the empirical analysis studies how the trade environment affected the price andsurvival characteristics of private ªrm export transactions. The ªrst set of tests arebased on city exports by industry–good type and destination. Next, to providebetter insight into the general results, the second component of the empiricalanalysis examines the price and survival characteristics of the micro-leveltransactions data.

3.1 Estimation framework and resultsBecause the analysis is focused on local ªrm export capability, the primary depend-ent variable, Priv_Exportchrgt, is the level exports in year t by private Chinese ªrms incity (c), H2 product sector (h), and product type (g) destined for export destinationregion (r). The basic speciªcation in equation (1) relates the current value of privateexports to local levels of multinational activity, local imports of similar industryprivate ªrms, and a number of controls.11

ln(Priv_Exportchgrt ) � � � �1*ln(MNC_ProvH2_Exportpht ) �

�2*ln(Priv_ProvInd_Importspht )� �*Zchdt � �Destn-Region � �Year � εchrgt

(1)

The key explanatory variables are the measure of multinational export activity,MNC_ProvH2_Exportpht, and a measure of related industry imports by private ªrmsin the same area, Priv_ProvInd_Importspht. The local exposure for both of these vari-ables is measured by province-level (p) activity. As with the dependent variable,these measures are both constructed from the original Customs data on export



11 Industry, which is denoted by the subscript h, is measured at the broad H2 level of trade.Examples of H2 industries are 62 (footwear), 69 (ceramics), 87 (vehicles). The Chinese city oforigin is given by the subscript c, and r refers to the export destination region (other Asia,Africa, North America, South America, Europe). Product type g refers indicates whether thegood is a consumer product, capital good or intermediate input.

transactions. In the case of multinational exports, this project classiªes trade transac-tions conducted by foreign invested ªrms, or any form of joint venture, as a multi-national corporation (MNC)-afªliated transaction. Thus, the industry-level MNC ex-port variable is formed by summing all MNC exports by province of products thatare contained within the H2 industry. Similarly, a measure of private ªrm imports atthe province-sector level is constructed by summing all province-industry importsfrom the more disaggregated Customs data. As the Data Appendix shows, the H2product data are assigned to 15 main manufacturing sectors. Thus, province sectormeasures are formed by aggregating all private ªrm imports within each sector.

Many economic factors cause the level of exports to vary across destination. For ex-ample, it is well known that trade volumes are smaller for trade partners in moredistant markets. To capture the fact that export absorption varies across locations,the regressions all include ªxed effects for export destination. In addition, compara-tive advantage differences help shape local export patterns. For example, thanks toresource endowments or local worker skills, a Chinese city may ªnd itself especiallywell-suited to the production of pulp and paper products. If so, the city will hostboth private ªrms and multinationals that are active in the pulp and paper industry,even if there are no spillovers between ªrms. Thus, to control for that fact that somecities are generally well-suited for some, but not all, industries, the regressions allinclude city–industry ªxed effects. Because city–industry ªxed effects control for alltime-invariant factors that stimulate both multinational ªrm and private ªrm ex-ports, we can search for spillovers by testing whether patterns in the evolution ofmultinational ªrm activity help explain the subsequent developments in localprivate Chinese export.

Finally, it is important to acknowledge the relevance of time factors. Time factors in-clude macroeconomic developments such as changes in prices or the business cycle,changes in export opportunities due to China’s entry into the WTO, and changes innational government policies and regulations. Although exports are affected by eachof these factors, however, it is difªcult to include variables that encompass all time-varying developments that inºuenced ªrm export incentives. Thus, to control fortime varying factors that aren’t directly included in the analysis, all regressions in-clude a full set of year ªxed effects.12

Baseline estimates of the general regression are reported in Table 3. The results dem-onstrate that private ªrm exports were related to developments in the general trade



12 Although the coefªcients for the ªxed year effects are not reported in the regression tables,they grow in magnitude over the panel, and are always statistically signiªcant.

environment. To begin, results from the full sample show that there was a positivecorrelation between provincial MNC exports in an industry and private city exportsin the same industry. In contrast, when the data are broken down by export locationto compare the effects multinational exposure on exports to Asian versus non-Asianlocations, the results show that MNC proximity had a stronger effect on growth inexports to non-Asian locations. Last, because supply chain networks often createlinkages for the trade in intermediate goods, the data are broken down by goodstype to test if the effects of multinational proximity are strongest for intermediate in-puts. The results show that the effects of multinational exposure had a positive ef-fect on the expansion of all forms of private ªrm export, however, with little differ-ence between the effects on the export of intermediate goods, capital goods, orconsumer goods.

The basic regressions reported in Table 3 also test whether the presence of specialeconomic zones or technology zones affected the level of private trade. The resultsshow that cities that provided technology zones had lower volume of privateªrm exports.

Although the initial regressions demonstrate that there were some correlations be-tween private ªrm exports and the local trade environment, the simple regressionsdo not reveal the source of the correlations. If policymakers seek to expand privateexports, it is important to ask whether private exports are boosted by proximity to



Table 3. City–industry exports by goods type and export destination: Panel regressions

Fullsample

Asiandestination

Non-Asiandestination

Intermediategoods

Capitalgoods

Consumergoods

Ln(MNC exportindustry-province)

0.0039***

(0.0012)�0.0034

(.0024)0.0058***(.0014)

0.0036***(.0015)

0.0077**

(.0039)0.0041***(.0016)

Ln(private ªrm importsector-province)

�.0022(.0043)

0.0019(.0088)

�0.0083(.0050)

�0.0141**

(.0064)�0.0053

(.0144)0.0056(.0051)

Special economic zone 0.211(.0303)

0.0033(.0607)

0.0278(.0353)

�0.0712(.0412)

0.0433(.0837)

�0.0540(.0051)

Technology zone �0.1576***

(.0227)�0.3552***

(.0570)�0.1258***

(.0249)�0.1333***

(.0279)�0.2221***

(.0565)�0.2338***

(.0351)

Ln(industry export) �0.0052*

(.0028)0.0074(.0060)

�0.0096***(.0032)

�0.0036(.0037)

0.0106(.0087)

�0.0166***(.0037)

Year FE YES NO YES YES YES YES

Destination FE YES YES YES YES YES YES

Observations 271,400 63,739 207,661 129,944 25,644 115,812

Overall R2 0.6827 0.7017 0.6784 0.7174 0.6726 0.6477


Note: Dependent variable Ln(city-H2-region exports). Panel regressions include H2-city ªxed effects. Standard errors in parentheses.

*Statistically signiªcant at the 10 percent level. **Statistically signiªcant at the 5 percent level. ***Statistically signiªcant at the 1 per-

cent level.

multinational ªrms, or whether the positive correlation between private exports andmultinational ªrm activity is driven by an underlying factor—such as natural en-dowments, changes in infrastructure, or policy developments—that beneªts allforms of trade. Such a concern is particularly relevant, as it is believed that multi-national ªrms carefully considered the location of their operations in China, ratherthan leaving their location to pure chance. Because multinational location was notunrelated to the local environment, the measures of multinational activity areendogeneous variables, and estimation by instrumental variables (IV)is recommended.

To ªnd valid instruments for the endogenous trade environment variables, Table 4begins by examining the factors that inºuenced multinational export activity. In thecase of multinational export, it is important to acknowledge foreign investmentinºows often ªnance the construction of plants and the development of physicalproduction capacity. Further, because foreign ªrm investments create ªrm-speciªcassets that are location-speciªc, we expect that foreign investment will generate per-sistence in foreign ªrm export activities at the location level. Thus, a ªrst control forcurrent multinational ªrm exports is lagged multinational ªrm exports. In addition,if foreign ªrms have a preference for using imported parts that are provided by theªrm or its afªliates in its global supply chain, multinational exports may also beneªtfrom increases in the volume and variety of imported inputs. As the ªrst column ofTable 4 shows, each of these conjectures hold. Local multinational exports were



Table 4. First stage regressions

Ln(MNC export industry-province) Ln(private ªrm import sector-province)

Ln(MNC exportindustry-province)t�1

0.7705(.0011)

0.0013***

(.0005)

Ln(MNC importindustry-province)

0.0856***

(.0073)0.0636***

(.0031)

Ln(MNC import diversityindustry-province)

0.0206(.0174)

�0.0957***

(.0132)

Special economic zone �0.1123***

(.0306)�0.0957***

(.0132)

Technology zone 0.0423***

(.0229)0.0490***

(.0099)

Ln(industry export) 0.3548***

(.0028)0.0079***

(.0012)

Year FE YES YES

Destination FE YES YES

Observations 277,284 277,284

Overall R2 0.8893 0.5693


Note: Panel regressions include H2-city ªxed effects. Standard errors in parentheses. ***Statistically signiªcant at the

1 percent level.

positively related to previous year multinational exports, as well as increases in thevariety and value of local intermediate imports.

The same set of factors may also inºuence private ªrm imports at the industry level.For example, if learning is important, contact with multinational ªrms will informprivate ªrms about good sources of input supply. Further, if learning about sourcesand types of imported inputs is important, the beneªts of multinational exposurewill be affected not just by the volume of multinational import, but by the diversityof multinational imports as well. The second column of Table 4 conªrms that allforms of multinational exposure are indeed positively associated with private ªrmimport of intermediates. Notably, in this context the results also show that privateªrm imports at the industry level are positively related to the availability of citytechnology zones, though they are negatively related to the presence of a specialeconomic zone.

Due to the signiªcance and strength of the results in Table 4, it is clear that the city–industry level of multinational ªrm activity and local industry imported intermedi-ate usage variables are endogenous. For this reason, we need to use IV techniques tostudy the effect of trade environment on local private export. Thus remainder of theanalysis uses instrumental variables estimation, which controls for the endogeneityof multinational exposure, and local import levels using the variables shown inTable 4 as instruments.

Although the results in Table 5 are based on the use of IV, the main result is un-changed. As before, the data indicate that increases in own-industry multinationalcontact boost the level of private ªrm exports. As before, the estimated beneªt ofmultinational exposure on private ªrm export is economically small though statisti-cally signiªcant, and is present for private exports destined for all regions with theexception of Asia. The absence of a positive effect in the case of core Asia may reºectthe fact that multinational exposure has the potential of generating both positiveand negative spillovers to private ªrms. In the case of core Asia export destinationsit may be that any positive spillovers, such as those due to learning from local multi-national ªrms, are fully offset by the effects of intensiªed competition and/or con-gestion externalities in local markets. In contrast, in the case of destination marketsoutside of the core-Asia region, the results imply that the overall effect of multina-tional exposure on private ªrm exports is positive.

In contrast with the earlier estimates that did not control for endogeneity of local in-termediate input imports, Table 5 now reveals a connection between private ªrmimports at the province-industry level and improved private ªrm export perfor-



mance. In the full sample the estimates suggest that a 10 percent increase in theuse of imported inputs elevated private ªrm exports by 2.4 percent. In addition,if the data are separated by export destination, the results show that the beneªtof local private intermediate imports extend to all private ªrm exports, regardlessof destination.

To learn whether the effects of multinational contact and private ªrm imports arerelevant for all types of product, Table 6 breaks the data into three distinct groupsfor each product type: capital goods, intermediate goods, and consumer goods.When the data are disaggregated by product group, the results show that differenttypes of goods beneªt from different elements of the trade environment. First,whereas private ªrm exports of intermediate or capital goods are boosted by expan-sions in local own-industry multinational export, the estimated effect on privateªrm export of consumer goods is positive but not statistically signiªcant. Second,because private ªrm exports of intermediate or consumer goods are found to rise asprovincial-industry imports increased, the data suggest that supply chain improve-ments brought by denser trade connections were helpful in these sectors. Finally, theone effect that is uniform across goods type is the negative association between citytechnology zones and private ªrm export. One possibility is that when cities cre-ate technology zones, and emphasize the production of more technologically sophis-ticated products, foreign ªrms ªnd it easier to gain entry to the zones because theyare already engaged in the encouraged set of activities. If so, the entry of foreignªrms may increase local production costs through their effect on managerial wages



Table 5. City–industry exports by export destination: IV regressions

Fullsample Asia Non-Asia

Europe, NorthAmerica & Oceana

Africa, Latin America &South America


0.0044***

(0.0015)�0.0028

(.0031)0.0063***

(.0018)0.0086***

(.0022)0.0105***

(.0039)


0.2411***

(.0330)0.2144***

(.0565)0.1732***

(.0415)0.0850***

(.0064)0.1437***

(.0735)


0.0375(.0622)

0.0513(.0358)

0.0576(.0431)

�0.0820(.0693)


(.0230)�0.3866***

(.0579)�0.1354***

(.0252)�0.1209***

(.0318)�0.1383***

(.0517)

Ln(industry export) �0.0090***

(.0032)0.0041(.0069)

�0.0130***

(.0037)�0.0192***

(.0045)�0.0168**

(.0076)

Year FE YES NO YES YES YES

Destination FE YES YES YES YES YES

Observations 269,156 62,907 206,249 139,717 46,215

Overall R2 0.6501 0.6784 0.6599 0.6665 0.6244



**Statistically signiªcant at the 5 percent level. ***Statistically signiªcant at the 1 percent level.

and other local inputs. In this case, technology zones would increase productioncosts, while not offering support to less sophisticated private ªrm production.

To further understand the importance of trade environment, the analysis also testswhether trade environment effects are uniform across export destinations and prod-uct type. This question may be relevant in the Asian region, for example, if multina-tional ªrm creation of Asia-based supply chains has altered export market opportu-nities. In particular, if multinational ªrms coordinate regional supply chains, theremay be less opportunity for private ªrm export expansion within the Asian foot-print of the multinational ªrm’s network. Differential effects may also be presentif private ªrms beneªt from information spillovers from multinational ªrms, andif the gain in information is larger for export to more distant, and therefore lesswell-known, destinations. The general qualitative results for non-Asian exportdestinations, however, are not substantially different from those observed in thefull sample.

To explore whether export effects depend on destination characteristics rather thanlocation, the non-Asian export data are divided into two groups, the ªrst represent-ing exports to wealthy country locations (North America, Europe, Australia andNew Zealand), and the second comprising developing country export destinations.In this setting, the results in Table 7 show that local MNC activity beneªts privateexport of all types when the products are exported to developed countries. In con-



Table 6. City–industry exports by product type: IV regressions

All destinations Non-Asian destinations

IntermediateCapitalgoods

Consumergoods Intermediate

Capitalgoods

Consumergoods


0.0089***

(0.0020)0.0127(.0048)

0.0027(.0020)

0.0105***

(.0024)0.0163***

(.0055)0.0041***

(.0023)


0.1585***

(.0416)�0.2221**

(.1018)0.2542***

(.0442)0.0263(.0528)

�0.2577**

(.1183)0.2338***

(.0580)

Special economic zone �0.0471(.0418)

0.0358(.0846)

�0.0147(.0402)

�0.0797(.0487)

�0.0452(.0962)

�0.0188(.0469)


(.0282)�0.2097***

(.0571)�0.2657***

(.0359)�0.1077***

(.0309)�0.1477**

(.0612)�0.2265***

(.0403)


(.0043)0.0049(.0099)

�0.0167***

(.0042)�0.0164***

(.0049)�0.0029***

(.0109)�0.0207***

(.0048)

Year FE YES NO YES YES YES YES


Observations 269,156 62,907 206,249 139,717 139,717 139,717

Overall R2 0.7099 0.6478 0.5981 0.7136 0.6413 0.5982




trast, in the case of private ªrm exports to developing countries, a positive andsigniªcant association with local MNC activity is only observed for the case of inter-mediate good exports. Second, the data show that increased provincial industry im-ports of intermediate inputs beneªt some private exports, but not all. Private ªrm pro-vincial industry imports were associated with higher levels of export in the cases ofintermediate and consumer goods exported to developing countries, but in the case ofexports to wealthy countries the beneªts were limited to consumer goods exports.

Local trade policy is measured by variables that indicate whether a Chinese exporterwas located in a city that was part of a special economic zone, or if the city offered atechnology zone. Although it is impractical to collect information on local develop-ments in trade policy at the sector level, it is important to test whether the generalpolicy conclusions are driven by the textile industry. Examination of the textile sec-tor is warranted because textile exports were liberalized in 2005, as the quotas set bythe multi-ªbre agreement (MFA) were eliminated. Because the elimination of thequotas provided new export opportunities for both multinational and private ªrmsin China, we expect to see a positive correlation between the two ªrm groups, asboth gained the opportunity to increase their textile exports in the later sampleyears. Such a correlation would reºect the change in the export policy environment,rather than any spillovers between multinational and private ªrms. Thus, to checkwhether activities of China’s large textile exports drive the general appearance ofmultinational ªrm spillovers, Table 8 breaks the data into two groups, the ªrst



Table 7. City–industry exports by product type: IV regressions

Europe, North America, & Oceana Africa, Latin America, & South America

IntermediateCapitalgoods

Consumergoods Intermediate

Capitalgoods

Consumergoods


0.0119***

(0.0030)0.0286***

(0.0070)0.0053***

(0.0027)0.0108***

(.0039)0.0052***

(.0110)0.0058(.0055)


�0.0696(.0603)

�0.4092**

(.1302)0.1251***

(.0645)0.1578***

(.0731)�0.3618

(.2018)0.3638***

(.1131)


(.0589)0.0503(.1201)

�0.0075(.0553)

�0.0823(.0689)

�0.2458(.1720)

�0.2702***

(.0920)

Technology zone �0.0744(.0400)

�0.1926***

(.0833)�0.1987***

(.0473)�0.1442***

(.0515)0.0582(.1100)

�0.1426(.0943)


(.0062)�0.0358***

(.0141)�0.0216***

(.0057)�0.0176***

(.0076)�0.0326

(.0202)�0.0233

(.0106)

Year FE YES YES YES YES YES YES


Observations 63,099 13,316 61,759 46,053 4,979 18,074

Overall R2 0.7057 0.6081 0.6333 0.6261 0.5928 0.4917




measures private ªrm textile exports and the second considers private ªrm exportsin all other sectors. In addition, due to the regionalization of supply chains, the dis-tinction between exports to Asia versus outside of Asia is also examined. The resultsshow the association between private ªrm imports and exports is especially strongfor the textile, whereas the coefªcients for other sectors are similar to those pre-sented earlier. In contrast, the estimated effects of multinational ªrm exposure aresimilar for all data groups. Thus, it does not appear that the general results on tradeenvironment and private ªrm exports are explained by the MFA policy changes.

4. Estimation based on individual export transaction prices and survival

To provide a better understanding of why private Chinese ªrms’ exports grew asthey experienced greater exposure to similar industry MNCs and as private ªrm in-termediate input imports in their province rose, the next analysis studies the priceand survival characteristics of private ªrm export transactions.

When studying private ªrm export prices the unit of analysis is the unit value of theprivate export.13 Due to the data disaggregation, each price is identiªed by city (c),H8 product (h), country destination (d), and year (t).

ln(Priv_Pricechdt ) � � � �*Zchdt � �Province � �Year � εchdt (2)

In a simple framework, we expect that a number of factors (Z) will affect privateªrm export prices. These include the average price of the H8 product when ex-ported by other ªrms in China, the GDP of the importing country, and the GDP percapita in the importing country. Because it is not possible to collect information onall factors that would inºuence prices, the analysis includes indicator variables forprovince and year. Further, the panel error term is set at the (H8 product–countrydestination) level to account for any systematic differences in goods quality thatdiffer at the product–country level.

The results of estimating this basic equation, which are displayed in the ªrst columnof Table 9, conªrm the importance of these basic economic determinants. Consistentwith the Linder (1961) hypothesis, which suggests that better quality products areshipped to higher income customers, the coefªcient on destination country GDP percapita is positive. In contrast, export prices have a negative association with destina-



13 Because the Custom trade data list transaction quantity, and transaction value, the unitvalue which is used to measures price is constructed as: unit value � (transaction value) /(transaction quantity).

tion country GDP. Such a ªnding supports the Melitz and Ottaviano (2008) predic-tion that mark-ups, and therefore prices, will be lower in large GDP countries thatsupport larger ªrm populations, and are consequently more competitive. Lastly, theresults demonstrate that individual private ªrm export prices are closely tied to theaverage product price earned by other exporters in China.

In addition to general economic conditions, it is possible that trade policies at thecity or provincial level may have also affected export prices. Thus, the next spe-ciªcation adds variables to indicate whether the private ªrm shipped its new exportfrom a city that was contained within a special economic zone or offered a hightechnology zone. Notably, as the second column of Table 9 shows, although the in-clusion of policy variables does not change the original economic coefªcients, bothpolicies were associated with a modest increase in the price of products exported byprivate ªrms.

Finally, to assess the effect of the trade environment, as measured by exposure to ex-porting multinational ªrms or to import of intermediates by private ªrms, on pri-vate ªrm export prices, estimating equation (2) is modiªed to include both terms.14

The new estimating equation is now:



14 Harding and Javorcik’s (2009) work on national investment promotion suggested that en-couragement of FDI elevates local export prices in the encouraged sectors, and Swenson andChen (forthcoming) ªnds that multinational contact increases local ªrm export prices.

Table 8. City–industry exports, textile industry effects: IV regressions

No textile industry Only textile industry

All destinations No Asia All destinations No Asia

Ln(MNC export industry-province) 0.0018(0.0017)

0.0036***

(.0019)0.0112***

(.0041)0.0117***

(0.0046)

Ln(private ªrm import sector-province) 0.2287***

(.0351)0.2089***

(.0442)1.1860**

(.5512)0.6187**

(.3148)


0.0305(.0386)

0.3102***

(.1372)0.2817***

(.1076)

Technology zone �0.1831(.0246)

�0.1532(.0269)

�0.2113***

(.0792)�0.0719

(.0761)

Ln(industry export) �0.0025(.0036)

�0.0064(.0041)

�0.0428***

(.0174)�0.0202

(.0135)

Year FE YES YES YES YES

Destination FE YES YES YES YES

Observations 223,838 172,120 45,318 34,129

Overall R2 0.6601 0.6598 0.4129 0.5649




ln(Priv_Pricechdt) � � � �1*ln(MNC_ProvH2-Exportpht)� �2*ln(Priv_ProvInd_Importspht)� �*Zchdt � �Province � �Year � εchdt

(2)

When speciªcation (2) is estimated by ªxed effect panel techniques, the data reveala positive and signiªcant association between private ªrm imports at the province-industry level and private ªrm export prices, whereas no systematic relationship isfound for local MNC export. However, because we have already shown that thetrade environment variables are endogenous, it is appropriate to estimate their ef-fects using instrumental variables. Thus, equation (2) is estimated using the earlierinstruments for provincial private intermediate usage, and for provincial export bysimilar industry multinational ªrms. As the last column of Table 9 shows, IV estima-tion causes the coefªcient on provincial intermediate use to almost double in magni-tude, and the coefªcient on provincial export by similar industry multinationalªrms is now positive and signiªcant as well.15 Although it is not possible to deter-mine the exact reason for these associations, they are consistent with the idea thatmultinational proximity and access to intermediate inputs help ªrms to supply



15 If the estimation is limited to private ªrm export prices, for newly introduced exports, IV es-timation of speciªcation (2) yields a coefªcient of 0.115 (.029) on private ªrm provincial im-ports, and �0.009 (.027) on multinational industry provincial exports.

Table 9. Private ªrm exports: Prices

(1) (2) (3) (4) (5)

Ln(average product price) 0.6395***

(.0031)0.6395***

(.0031)0.6630***

(.0031)0.6630***

(.0031)0.6634***

(.0031)

Ln(destination GDP) �0.2243***

(.0301)�0.2217***

(.0301)�0.1921***

(.0302)�0.1921***

(.0302)�0.1885***

(.0303)

Ln(destination GDP/capita) 0.2578***

(.0318)0.2559***

(.0318)0.2352***

(.0318)0.2351***

(.0318)0.2301***

(.0320)

Special economic zone 0.0414***

(.0040)0.0421***

(.0041)0.0420***

(.0041)0.0448***

(.0041)


(.0036)0.0408***

(.0036)0.0408***

(.0036)0.0387***

(.0036)


(.0009)0.0361***

(.0009)0.0676***

(.0110)

Ln(MNC export industry-province) �0.0012(.0007)

0.0358***

(.0110)

Year FE YES YES YES YES YES

Destination FE YES YES YES YES YES

Observations 2,293,614 2,293,614 2,123,583 2,123,583 2,123,583

Overall R2 0.6181 0.6196 0.6487 0.6487 0.6485


Note: Panel regressions with (H8 product-country destination) ªxed effects in the error term, columns (1)–(4). IV regression in col-

umn (5) with H8 product-country destination) ªxed effects in the error term. Standard errors in parentheses. ***Statistically

signiªcant at the 1 percent level.

better quality goods, or to make better matches in international markets, and there-fore to receive greater compensation for their exports.

Tables 10 and 11 explore how coefªcients estimated using speciªcation (2) and in-strumental variables change when the full sample is broken down by goods type(intermediates, capital goods, consumer goods), or by destination (core Asia versusnon–core Asia). At the goods level, the estimates show that the price increasesachieved due to provincial private ªrm usage of intermediate inputs are positiveand signiªcant for intermediate goods and capital goods exports, with the largestbeneªt emerging in the capital good sector. In contrast, there is no association ob-served in prices of consumer goods exports. On the geographic dimension, the dataindicate that the price elevation experienced in the presence of provincial privateimports is limited to private ªrm exports outside of core Asia.

Similarly, proximity to provincial multinational ªrms engaged in export of similarH2 industry areas has differential association with private ªrm export prices whenthe data are compared across product types and across export destinations. In thiscase, the largest price increases are observed in the prices of consumer goods ex-ported by private ªrms, and in private ªrms exports destined for locations withinthe core Asia region.




Intermediate goods Capital goods Consumer goods


(.0060)0.6453***

(.0080)0.6453***

(.0054)

Ln(destination GDP) �0.4276***

(.0497)�0.1411

(.1548)�0.0561

(.0468)

Ln(destination GDP/capita) 0.4003***

(.0525)0.1861(.1623)

0.1573***

(.0468)


(.0068)0.0954***

(.0198)�0.0154

(.0051)


(.0054)0.0631***

(.0167)�0.0106

(.0608)


(.0106)0.2418***

(.0440)�0.0106***

(.0608)

Ln(MNC export industry-province) �0.0132(.0155)

�0.0600(.0452)

0.1883***

(.0553)

Year FE YES YES YES

Destination FE YES YES YES

Observations 858,799 213,788 956,859

Overall R2 0.2979 0.6869 0.6153


Note: Panel IV regressions with (H8 product-country destination) ªxed effects in the error term. Standard errors in parentheses.

***Statistically signiªcant at the 1 percent level.

On the policy dimension, the data show that intermediate goods and capital goodsthat were exported by private ªrms had higher prices when the exports originatedfrom Chinese cities that were covered by a special economic zone, or that offered ahigh technology zone. Further, the price increase associated with city policy zoneswas strongest for exports shipped to core Asiacountries.

4.1 Estimation based on individual export transaction survival probabilitiesThere are many reasons why private ªrm export prices may have increased: multi-national proximity, intensiªed local intermediates import, or local participation inspecial economic zones or technology zones. One possibility is that local policy ef-forts and information spillovers from multinationals helped private ªrms to im-prove the quality of their products. Alternatively, these forms of exposure may havehelped private Chinese ªrms to export to foreign customers who were willing topay higher mark-ups. In either case, private Chinese ªrms would have reaped thebeneªts accruing to more valuable sales. It is also possible, however, that the effecton prices was less beneªcial. For example, it is possible that the entry of multina-tional ªrms or the local offering of technology zones caused local congestion. Ascongestion increased the local wages and production costs, ªrms would raise theirprices to cover their newly elevated operating costs.




Exports to Asia Exports outside Asia


(.0058)0.7026***

(.0038)

Ln(destination GDP) 0.3887***

(.0871)�0.1930***

(.0329)

Ln(destination GDP/capita) �0.5041***

(.0965)0.2976***

(.0337)


(.0072)0.0042(.0050)


(.0077)0.0223***

(.0041)

Ln(private ªrm import sector-province) �0.0383**

(.0170)0.0860***

(.0135)

Ln(MNC export industry-province) 0.1484***

(.0176)0.0244*

(.0133)

Year FE YES YES

Destination FE YES YES

Observations 576,179 1,547,404

Overall R2 0.5395 0.6474


Note: Panel IV regressions with (H8 product-country destination) ªxed effects in the error term. Standard errors in parentheses.

*Statistically signiªcant at the 10 percent level. **Statistically signiªcant at the 5 percent level. ***Statistically signiªcant at the

1 percent level.

To disentangle whether the price increases represented a beneªt, we can observe thesurvival characteristics of the new trade transactions. If multinational exposurecaused local private ªrms to increase prices, then as congestion externalities raisedtheir costs we would predict that multinational exposure was associated with lowersurvival rates for new transactions. In contrast, if multinationals helped private ªrmsto learn about export market opportunities, and helped local ªrms to increase theirproduct quality, then we would expect that Chinese trade transactions that were ex-posed to multinational ªrm activity would have a higher survival probability.

To examine survival effects, new private exports are deªned by the emergence ofnew private ªrm export transactions, identiªed by a unique combination of H8product code, export country destination, and city of origin, that did not exist in theprevious year. New private export transactions emerge when private ªrms start toexport a new H8 product that they did not previously export or when private ªrmsexport H8 products to new destinations. The importance of new transactions is ex-plored in Swenson and Chen (forthcoming), who ªnd that 20 percent or more of allChinese private export volume until 2004 was explained by new transactions. In ad-dition, although the value share of private exports attributable to new transactionsdropped through the 2000s, even by 2009 the value share never dropped below 10percent. Finally, to the extent that the contribution of new transactions declined overtime, this was due to the fact that previous transactions were surviving, and thus re-ducing the share of private export transactions that were new.

To assess whether multinational export proximity or proximity to local private ªrmimporters affected survival probabilities, the linear probability speciªcation (3) wasestimated. The key variables are deªned as before, and the regressors Z include des-tination country GDP and GDP per capita, as well as the city variables indicating thecity availability of a special economic zone or high technology zone.

Prob[Survchdt] � � � [�1 � �2*Asia]*ln(MNC_ProvH2-Exportpht )� [�3 � �4*Asia]*ln(Priv_ProvInd_Importspht ) � �*Zchdt

� �Province � �Year � �Region � �Industry � εchdt

(3)

The linear probability model is run with a number of ªxed effects for province, year,export region, and industry, and the results are reported in Table 12.

When all goods are included in the speciªcation, the results show that contact withmultinational ªrms was indeed related to improved survival probabilities. Acrossall new transactions observed in the underlying data, the raw one-year survival



rate was 38.6 percent. The estimated coefªcient for �1 implies that a one-standard-deviation increase in the multinational ªrm proximity measure increased a privateªrm’s survival probability by 3.82 percentage points. Similarly, the estimated valuefor the coefªcient �3 implies that a one-standard-deviation increase in the local pri-vate industry imports was associated with a 1.2 percentage point increase in transac-tion survival, with an even larger boost in the case of survival rates for productsdestined for location in core Asia. Thus, both results are consistent with the idea thatprivate ªrm export quality and/or match was improved by contact with multina-tional ªrm exporters, or increases in local private ªrm access to imports.

The general results also reveal a number of economic relationships that are robustacross the transactions within the data set. First, transactions that were introducedin larger markets, as measured by destination country GDP, were more likely to sur-vive than those that were sent to smaller markets. Second, private ªrms may havehad difªculties meeting quality expectations in tough markets, as survival rateswere lower for new transactions that were introduced in destination markets thatwere populated by wealthier customers. Finally, city availability of special economiczones and technology zones were differentially associated with new private exporttransaction survival: Whereas high technology zones had a strong positive connec-



Table 12. Private ªrm exports: Survival probabilities

Full sample Intermediate goods Capital goods Consumer goods

Ln(destination GDP) 0.0226***

(.0005)0.0226***

(.0007)0.0253***

(.0015)0.0224***

(.0007)

Ln(destination GDP/capita) �0.0031***

(.0006)�0.0046***

(.0009)�0.0038**

(.0018)�0.0016***

(.0011)


(.0039)�0.0402***

(.0062)�0.0045

(.0116)�0.0181***

(.0059)


(.0035)0.0092***

(.0009)0.0181*

(.0096)0.0325***

(.0062)


0.0047***

(.0008)0.0060***

(.0013)0.0109*

(.0037)0.0036***

(.0012)

Ln(private ªrm importindustry-province)*Asia

0.0023***

(.0006)0.0019***

(.0009)0.0033*

(.0027)0.0004***

(.0010)


0.0115***

(.0004)0.0113***

(.0007)0.0129***

(.0023)0.0054***

(.0008)

Ln(MNC exportindustry-province)*Asia

�0.0023***

(.0005)�0.00112

(.0008)�0.0014

(.0025)�0.0002

(.0009)

Year FE YES YES YES YES

Destination FE YES YES YES YES

Observations 657,423 273,903 67,270 276,858

Overall R2 0.02599 0.02701 0.03180 0.02777


Note: Standard errors in parentheses. *Statistically signiªcant at the 10 percent level. **Statistically signiªcant at the 5 percent level.

***Statistically signiªcant at the 1 percent level.

tion to transaction survival, the connection between survival and special economiczones was negative, and equally strong.

When survival rates are studied by export group, the strongest survival beneªt ofproximity to provincial same-industry private imports is observed in the survivalrate for capital goods exporters. Positive and signiªcant effects are also apparent forprivate Chinese ªrms that were engaged in the export of intermediate and con-sumer goods, however. The positive association of same-industry multinational ªrmexport proximity and new transaction survival is found to be strongest for the casesof new intermediate and new capital goods exports, though the effect is universallypositive. Further, the beneªts of multinational proximity are not found to differsigniªcantly across the three goods groups for exports to countries in core Asia.

5. Conclusion

This paper investigated factors in China’s trade environment that supported thedramatic increase in private ªrm exports. Based on data from 1997 to 2009, a num-ber of interesting results emerge. First, growth of private ªrm exports at the city–industry level was positively associated with increased exposure at the provinciallevel to similar industry MNC exports, and with expansion in private ªrm importsat the broad industry level. The net beneªts of multinational exposure are particu-larly strong for consumer goods, and the beneªts of provincial imports are strongestin the case of private ªrm exports of capital goods or intermediate inputs. In con-trast, governmental programs such as special economic zones and technology zonesare not found to increase the volume of private ªrm exports. To interpret theseªndings, this paper studied the underlying data on private ªrm export prices andsurvival at the product level. Taken together, the results are consistent with the ideathat increases in private ªrm exports have been assisted by proximity to multina-tional exporting ªrms, and by increases in provincial input supply due to improve-ments in product quality.

The effects of special economic zones and high tech zones are more complicated be-cause local provision of these policy areas is negatively related to private exportvalue, but positively related to individual private export transactions prices. Al-though the contrasting results may be surprising, they may emerge if local zone pro-vision intensiªes competition in product and factor markets. If market conditionsare tougher, then only the higher quality private ªrms that can charge higher priceswill survive. Because fewer private ªrms can meet the more difªcult entry criteria,however, the overall volume of local private export will be diminished. Thus, tomore fully understand the effects of local on zone exports, later analysis is needed to



evaluate the effects of special economic zones and high technology zones on multi-national and state-owned enterprise exports.

Due to the beneªts of local development of private import networks at the sectorlevel, the broad results provide a few conclusions related to policy. First, if China’sexchange rate is undervalued, the results suggest that any such undervaluation willhinder the export performance of China’s private ªrms, due to the increased ex-pense of procuring imported intermediate inputs. Further, to the extent that localpolicies may have impeded the full integration of China’s provinces, the inºux ofmultinational ªrms and improved access to imported intermediate inputs followingChina’s entry to the WTO may have helped to alleviate supply problems that werecaused by interprovincial barriers to the ºow of goods and inputs. Thus, sustainingthe export success of private ªrm exports requires a full understanding of China’strade environment that goes beyond observation of policy instruments that havebeen implemented at the city and provincial level.

Data Appendix

Sector DeªnitionsChemical (H2 � 28–38)Plastic & Rubber (H2 � 39–40)Leather (H2 � 39–40)Wood Products (S2 � 44–46)Pulp & Paper (H2 � 47–49)Textile & Apparel (H2 � 50–63)Footwear, Hats, & Accessories (H2 � 64–67)Stone, Plaster, & Cement (H2 � 68–70)Precious Materials (H2� 71)Metal & Metal Products (H2 � 72–83)Machinery (H2 � 84)Electrical Machinery (H2 � 85)Transportation (H2 � 86–89)Instruments & Precision Equipment (H2 � 90–92)Misc. Manufacturing (H2 � 93–96)

Product Classiªcations: Based on UN Broad Economic Categories (BEC) CodesPrimary Goods [111, 21, 31]Intermediate Goods [121, 22, 322, 42, 53]Capital Goods [41, 521]Consumption Goods [112, 122, 51, 522, 61, 62, 63]



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