Working Paper: CEPR ID: DP9246
Authors: Amit Khandelwal; Peter K. Schott; Shangjin Wei
Abstract: If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. We examine Chinese textile and clothing exports before and after the removal of externally imposed quotas. Both the surge in export volumes and the decline in prices after the quota removal are driven by net entry, implying that the pre-liberalization quota allocation is not based on firm productivity. Removing this misallocation accounts for a substantial share of the overall productivity gains associated with the quota removal.
Keywords: China; Misallocation; Multi-Fibre Agreement; Productivity
JEL Codes: F1; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Quota removal (Y60) | Productivity increase (O49) |
| Quota misallocation (D61) | Productivity increase (O49) |
| Trade liberalization (F13) | Productivity increase (O49) |
| Removal of quotas (L42) | Surge in export volumes (F10) |
| Removal of quotas (L42) | Decline in prices (E31) |
| New entrants (M13) | Surge in export volumes (F10) |
| Incumbents (G18) | Decline in market share (D49) |
| State-owned enterprises (SOEs) (L32) | Decline in market share (D49) |
| Privately owned firms (P31) | Increase in market share (D49) |