Processing Trade, Productivity and Prices: Evidence from a Chinese Production Survey

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Yao Amber LI
8 Nov 2018 (Thursday)
4:00 - 5:00 pm
IAS2042, Lo Ka Chung Building, Lee Shau Kee Campus, Hong Kong University of Science and Technology

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Abstract

In this paper, we use a detailed production survey in the Chinese manufacturing industry to estimate both revenue and physical productivity and relate our measurements to firms’ trade activity. We find that Chinese exporters for largely export oriented products like leather shoes or shirts appear to be less efficient than firms only involved  on the domestic market based on the standard revenue productivity measure. However, we show strong positive export premium when we instead consider physical productivity. The simple and intuitive explanation of our results is that exporters charge on average  lower  prices. We  focus more particularly on  the role of processing trade and find that price differences are especially large for firms involved  in this type of contractual arrangements. We  suggest three reasons  to explain this result. First, lower prices may simply be due to a mechanical effect  as processing trade products are not subject to tariffs nor have to pay VAT. Second, some types of processing trade activities entail that the processing trade firm receives the inputs for free from the contracting firm, therefore artificially depressing the values of inputs or materials used for the firm’s production. Third, lower prices may  also be a consequence of transfer pricing, as multinationals involved in FDI in China may alter the price charged for inter-company transactions to shift funds within the organization.

About the Speaker 

Dr. Yao Amber Li is an IEMS Faculty Associate and Associate Professor in the Department of Economics at HKUST. Her research interests include technology transfer, innovation, quality upgrading, FDI, agglomeration, TRIPS (Trade-Related Aspects of Intellectual Property Rights), and in particular, heterogeneous firms in emerging economies, based on microeconomic evidence from developing countries, especially from China. She worked as a research fellow in Planning Research Institute, Ministry of Industry and Information Technology (previously, Ministry of Information Industry) of China between 2003 and 2005. She has participated in a series of China’s national research projects. She was one of the main framers and revisers of several China’s national industrial policies (digital TV, integrated circuits, software, etc.), and major policies regarding FDI, exporting, industrial agglomeration and economic development zones for Chinese government. During her PhD study, she joined several research projects sponsored by a national think-tanker, the Centre for International Governance Innovation (CIGI, Canada). She holds a BA (2001) and an MA (2003) in Economics from Peking University (P.R. China) and a PhD (2010) in Economics from University of Western Ontario (UWO, Canada). She received a First-Prize National Award for Research Excellence issued by Ministry of Commerce of China in 2004 and the TM Brown Thesis Prize for best doctoral dissertation in Economics at UWO in 2010.

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