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Keywords: Trade heterogeneity, Productivity, Export, Import

JEL classification: F1, F14

ABSTRACT

This paper investigates the productivity effect of trade by focusing on various types of trades. Aside from trade volume, the trade heterogeneity we consider includes variety, destination, unit price, and trade type. Based on within-firm-product panel data on China's electronics industry, we confirm a productivity gain from export when firms trade with developed countries, undertake process trade, and have a higher unit price, but not for firms exporting a greater variety of goods. These heterogeneities in imports also matter to promoting productivity. Moreover, the productivity-enhancing effect of trade varies between domestic and foreign firms, whereby domestic firms benefit more from international trade.

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

International trade is widely thought to have a positive influence on productivity. Using micro-level data, empirical works have sought to examine the existence of productivity gains benefitting from exports. Competition and exposure to a superior foreign market can speed up technological acquisition and thus lead exporters to promote productivity. This learning-by-exporting hypothesis has been tested in many studies, yet they have shown inconsistent findings (e.g., Wagner, 2012 for a survey). Even if the learning effect of exporting is limited, trade might promote firm productivity through withinfirm product reallocation by concentrating on their core competence (Eckel and Neary, 2010). Imports, on the other hand, might mediate international knowledge transfers and promote firm productivity (Acharya and Keller, 2011; Löof and Andersson, 2010). Specifically, trade liberalization enables imported inputs to become cheaper and thus raises productivity via learning, variety, and quality effects (Amiti and Konings, 2007). Lowering output tariffs can also boost firm productivity through the "import competition" effect (Pavcnik, 2002; Topalova and Khandelwal, 2011).

Though the productivity effect of trade has attracted concerns widely, one crucial issue that whether the differences in contents of trade affect firm productivity is not yet well examined. Indeed, knowledge embodied in exporting and importing commodities varies significantly, depending on what and where you trade, thereby differentiating the degree of the learning effect of trade. Such a concept has been highlighted in Feenstra and Kee (2008) whereby export variety positively matters to a country's productivity, while firm-level studies linking trade heterogeneity to firm productivity are scarce.

The existing literature relating...

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