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Policy Research Working Paper 6330

Chinese Trade Reforms, Market Access
and Foreign Competition

The Patterns of French Exporters

Maria Bas
Pamela Bombarda

The World Bank
Development Economics Vice Presidency
Partnerships, Capacity Building Unit
January 2013

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Produced by the Research Support Team

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and
its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Policy Research Working Paper 6330

A unilateral trade reform generates two opposite
effects: market access expansion and strengthening of
competitive pressures in the liberalized market. Using
detailed trade and firm-level data from France, the
authors investigate how French firms’ product scope and
export sales changed after Chinese liberalization vis-à-

This paper is a product of the Partnerships, Capacity Building Unit, Development Economics Vice Presidency. It is part
of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy
discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org.
The authors may be contacted at maria.bas@cepii.fr and pamela.bombarda@u-cergy.fr.

vis Asian liberalization. The findings suggest that lower
Chinese import tariffs account on average for 7 percent
of the new products exported by French firms, and for 18
percent of additional French export sales. These results
are robust when accounting for foreign competition faced
by French firms in the liberalized market.

Chinese Trade Reforms, Market Access and Foreign Competition:

the Patterns of French Exporters

Maria Bas and Pamela Bombarda

JEL classification: F12, F13, L11.

Keywords: unilateral trade liberalization, market access, foreign competition, export margins and firm

level data.

Sector Board: Economic Policy (EPOL)

Maria Bas (Corresponding author) is an economist at the Centre d’Etudes Prospectives et d’Informations Internationales
(CEPII); her email is maria.bas@cepii.fr. Pamela Bombarda is an assistant professor at the Université de Cergy-Pontoise and
THEMA; her email is pamela.bombarda@u-cergy.fr. The authors thank Agnès Benassy-Quéré, Antoine Berthou, Sebastien
Jean, Lionel Fontagné, Elisa Gamberoni, Thierry Mayer, Cristina Mitaritonna, Sandra Poncet and Elisabeth Sadoulet. We
also thank two anonymous referees for their valuable comments to the manuscript and their constructive suggestions.

1

INTRODUCTION

Unilateral trade liberalization is at the core of economic reform packages implemented in several

emerging economies in the last decades.1 Microeconomic effects of trade reform episodes have received

a lot of attention recently. Empirical works have concentrated on how trade openness shapes firms’

productivity (Pavcnik (2002), Trefler (2004), Amiti and Konings(2007), Lileeva and Trefler (2010) and

Bas and Ledezma (2010) among others). Bernard et al.(2010), using firm-product level data, also show

that trade liberalization affects multi-product firms’ export patterns.2 However, there is scarce evidence

on the different mechanisms through which unilateral trade liberalization in a country affects the export

performance of firms located in other countries.

This paper sheds new light on intra-firm adjustments due to trade integration combining the unilateral

trade liberalization process experienced by China at the end of the 90s with firm-product-destination

data for French firms (1999-2005). After a unilateral trade reform involving asymmetric countries, two

opposite forces are at stake: market access expansion and strengthening of competitive pressures in the

liberalized market. The main contribution of this paper to the literature is to investigate this trade-off.

On the one hand, tariff reductions increase foreign demand and induce firms to export more products

to the liberalized markets. On the other hand, we also expect an intensification of foreign competition

in each market. This channel is related to the tougher competition of third countries in the liberalized

market that might affect negatively the expansion of French exports to that destination.

Addressing the trade-off between market access expansion and tougher competition, we can evaluate

French firms’ export strategies in the event of a unilateral trade liberalization.3 We give specific attention

to the France-China trade relationship so to account for the role of China in the global trading system

and its trade policy commitment. Using French micro-level data, our empirical strategy consists in

investigating how French firms’ product scope and export sales changed as a consequence of China’s

largest unilateral tariff liberalization vis-à-vis Asian trade liberalization. We focus on a sample of Asian

2

countries as a group of comparison. This sample represents a homogeneous group of countries in terms

of trade integration and geographical proximity.4

To capture the effect of market access expansion, we rely on changes in applied tariffs at HS6 level

from TRAINS. These tariff measures are related to the firm, country and year level dimension. Since

we are interested in unilateral trade liberalization episode, we use the Most Favorite Nation (henceforth

MFN) applied tariffs set by each Asian country to the rest of the world. To enter the WTO, each country

sets the same tariff cuts with respect to all countries according to a multilateral negotiation. For this

reason, it is unlikely that French firms have influenced tariff cuts negotiations. Therefore, these tariff

measures allow us to exploit an exogenous variation of tariff across firm-country pairs.

To account for the intensification of competition faced by each firm in the liberalized markets, we use

three different measures of foreign competition at the firm-country level. The first competition measure

is a firm-level Herfindahl index that captures competitive pressures at the extensive margin, where the

number of foreign competitors is proxied by the number of countries exporting the same product line

that the French firms towards the Asian markets. The second measure of foreign competition is also

captured by a firm-level Herfindahl index, but in this case the number of foreign competitors is proxied

by the number of French firms exporting the same product line towards the Asian markets. Finally,

the third competition measure captures the intensive margin competition faced by French firms in each

Asian market.

Our results present novel insights on product turnover associated to trade reforms. Our findings

indicate that: the expansion of French exported products and sales to China after tariff cuts is stronger

relative to other Asian destinations. All the specifications suggest that the increase in foreign competition

in the liberalized market has a negative effect on the number and the value of products exported by French

firms to the Asian countries. Once accounting for foreign competition in the liberalized market, our

estimates indicate that the average Chinese tariff cuts is associated to a larger expansion in the number

of exported products (7 percent) and in export sales (8.4 percent) for the average firm when compared to

3

the Asian sample.

We next investigate which are the exported products that firms are expanding the most. We split the

sample into intermediate and final good products using the Broad Economic Category (BEC) classifica-

tion from United Nations. Our findings suggest that Chinese liberalization has almost no effect on the

subsample of firms exporting final goods. The Chinese tariff cuts have affected mainly the expansion of

exports of intermediate goods. This result continues to hold when we control for foreign competition.

These findings highlight the relevance of intermediate goods exports to China. This result can further be

related to the predominant role of multinational firms. To explore this feature, we split the sample into a

multinational firms subsample. Our point estimates imply that a 7 percentage points decline in Chinese

MFN tariff increases more than twice the number of exported products by multinational firms located in

France relative to other exporting firms.

Several sensitivity tests were performed. The findings are robust to alternative firm level controls

such as firm size and labor productivity. In order to address the potential reverse causality issue between

Asian tariff changes and French firms export patterns, we carry out robustness checks using an alternative

weighted average tariff measure at the firm level using initial weights. Finally, we demonstrate that our

findings are not driven by the countries selected in the control group. The results remain unchanged when

we restrict the sample to Asian countries with a similar level of economic development by excluding

Korea, Japan and Singapore.

Our paper contributes to the growing body of literature on micro-economic effects of trade liberal-

ization. Recent developments in international trade theory focus on the patterns of multi-product firms

and the “within-firm” adjustments to trade liberalization. Mayer et al. (2009) and Bernard et al. (2010)

introduce multi-product firms in heterogeneous firms’ models based on the pioneering work of Melitz

(2003).5 Recent empirical studies using disaggregated data at the firm-product level focus on the impact

of trade liberalization on export choices of multi-product firms. Iacovone and Javorcik (2010) study the

patterns of the export boom of Mexican firms in 1994-2003. They find a huge product turnover within

4

firms, an expansion of the number of traded products and a growth in the volume of pre-existing prod-

ucts. Other works focus on how the Canada-US Free Trade Agreement (CUSFTA) has affected US firms’

export patterns (Bernard et al., 2010) or Canadian firms’ export product scope (Baldwin and Gu, 2009).

Using French firm-product level data, Berthou and Fontagné (2009) investigate the role of a reduction of

trade costs on the product mix of French exporters using the introduction of the euro as a proxy for trade

barriers. Dhingra (2009) tests her monopolistic competition model of brand differentiation by examining

Thai trade liberalization process (2003-2006).6 The main contribution of this paper is to disentangle the

effects of market access expansion vs. foreign competitive pressures after a unilateral trade liberalization

episode in a fast growing developing country like China.

The rest of the paper is organized as follows. The next section presents the main mechanisms that

are at stake after a unilateral trade liberalization episode between asymmetric countries. Section II pro-

vides stylized facts about China’s trade liberalization and the patterns of French multi-product exporters.

Section III presents the empirical strategy and Section IV depicts the econometric evidence based on

firm-product-level data for French exporters. Section V presents robustness tests dealing with omitted

variable concerns, potential endogeneity issues and country selection issues. Section VI concludes.

I. MICROECONOMIC EFFECTS OF UNILATERAL TRADE LIBERALIZATION

Before analyzing the relationship between Chinese unilateral trade liberalization and French firms’

export patterns, this section provides some insights on the potential effects of a unilateral trade liberal-

ization episode on the export performance of firms exporting toward the liberalized market.

The empirical literature on international trade and heterogeneous firms has focused mainly on the

effects of bilateral trade liberalization between symmetric countries. Baldwin and Gu (2009), by the

means of plant-product level data for Canada, show that the Canada-US Free Trade Agreement (CUS-

FTA) has reduced the product diversification and size of non-exporting Canadian plants. Using also the

5

CUSFTA as a case of bilateral trade liberalization process, Bernard et al. (2010) test their model based

on firm-product level data for the US using a difference-in-difference framework. Their findings show

that firms concentrate their production in their core competencies (their best selling products) after trade

liberalization. They find that firms that experienced larger Canadian tariff cuts (above the median) re-

duce the number of products they produced for the domestic market relative to firms experiencing below

median Canadian tariffs reductions.

The nature of a unilateral trade liberalization episode is different than the bilateral trade liberaliza-

tion. Under a bilateral trade agreement like the CUSFTA, both countries that undertake the reform will

experience an increase in market access. Thereby, a bilateral trade reform between symmetric countries,

affects mainly the market potential of exporting firms belonging to the FTA. Differently, the unilateral

trade reform, by affecting all countries in the world, gives rise to two opposite mechanisms.

The first mechanism is related to market access expansion. The export patterns of foreign firms

selling their goods to the liberalizing market are affected by the increase in the foreign demand. The

second mechanism is related to the intensification of foreign competition in the liberalizing market.

This paper aims at quantifying these two effects associated to a unilateral liberalization episode. More

specifically, we propose to evaluate how Chinese unilateral trade liberalization affected the pattern of

French exporters. Chinese import tariff reductions, by boosting import demand in China, should induce

French firms to export more products toward the Chinese market. Nevertheless, since Chinese import

tariff reductions were addressed to all countries, also firms located in other countries should have taken

advantage from the new export opportunities in the Chinese market. This process enhances competitive

pressures in the Chinese market and thus curbs exports by French firms.

In the econometric analysis, we disentangle these two channels by using different measures of foreign

competition at the firm level. In the next section, we present some descriptive evidence on how Chinese

tariff cuts might shape French firms’ export patterns.

6

II. A FIRST GLANCE AT THE DATA

Unilateral trade liberalization took place in several Asian countries in the 1990s. All the Asian countries

considered in this study entered the WTO in 1995 but China.7 The main exception is China that joined

the WTO at the end of 2001. The Chinese tariff reduction process started well before 2001 though.

In fact, to join WTO, China has agreed to undertake a series of important commitments to open and

liberalize its regime. This allowed China to be better integrated into the world economy and offer a more

predictable environment for trade and foreign investment in accordance with WTO rules. This process

started from the mid 1990s, when China gradually eliminated trade barriers and expanded market access

to goods from foreign countries.8

Between 1999 and 2005, the average MFN tariff applied by China falls 7 percentage points, while

the reduction in the average MFN tariff applied by the other Asian countries in our sample is of the

order of 2 percentage points.9 China has important trade relationships with European countries: Europe

is China’s largest export market and Europe’s largest source of imports. During the 2000s, EU-China

trade increased dramatically, doubling between 1999 and 2005. Despite China being one of the most

important challenges for EU trade policy, little is known about the behavior of multi-product firms and

the importance of product turnover vis-à-vis China’s liberalization.

Figure 1 plots the average growth of the number of French firms exporting to China and to other

Asian destinations during 1999-2005.10 As one can easily remark, while the number of French exporting

firms’ to China increases by 60 percent between 1999 and 2005, the number of exporting firms to other

Asian destinations decreases almost by 10 percent over the same period.

To understand the effect of Chinese trade reforms on the exporting behavior of French firms, Fig-

ures 2 and 3 relate the change in tariffs with the change in export sales and exported products between

2005 and 1999. Figure 2 plots export sales to China (other Asian countries) with respect to the average

Chinese applied MFN tariff at firm level (average tariff of other Asian countries). Figure 3 presents a

7

Figure 1: Number of exporting firms (1999=100)

Note: authors calculations based on French customs dataset for 1999-2005, where the base year is 1999.

similar relation, but focusing on the number of exported products per firm to China (other Asian coun-

tries). These figures provide a preliminary evidence of French exports expansion towards the Chinese

liberalizing market over the period under analysis.

However, French firms exporting to China might also suffer from tougher competition, due to the

specificity of Chinese liberalization. To account for tougher competition, we use a concentration Herfind-

ahl index at the firm level. In this measure, the number of foreign competitors is proxied by the number

of countries exporting the same product line towards each of the Asian markets. Figure 4 shows the

evolution of this measure over time with respect to China and to the other Asian destinations.11 The

Herfindhal index decreases more for China relative to other Asian destinations. Notice that a lower

Herfindhal index implies less concentration and more competition (in terms of number of countries).

This descriptive evidence indicates an increase in competitive pressures faced by French firms in the

Chinese market after the unilateral trade liberalization.

To sum up, this preliminary evidence highlights that French firms expanded their exports to China

after Chinese unilateral trade reforms. Nevertheless, they also faced stronger competitive pressures in

8

Figure 2: Evolution of Intensive margin with respect to tariff cuts

Note: authors calculations based on French customs dataset for 1999 and 2005. Chinese MFN tariffs are from TRAINS
dataset.

Figure 3: Evolution of Extensive margin with respect to tariff cuts

Note: authors calculations based on French customs dataset for 1999 and 2005. Chinese MFN tariffs are from TRAINS.

9

Figure 4: Extensive margin of foreign competition (N countries) faced by French firms
0

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China. To evaluate the net effect of Chinese unilateral liberalization on French firms’ export patterns, we

should take into account explicitly the role of foreign competition in the liberalized market.

III. EMPIRICAL STRATEGY

Data description

We use individual export data on manufacturing goods for France, collected by French Customs.12

These data contain the value of exports by product, firm and destination over the time period 1999-2005.

This database classifies export flows at the firm level within 8 digit product categories. Our analysis is

restrict to manufactured products.

We use MFN applied tariffs at the HS6 product level collected from TRAINS.13 From this database,

we consider the tariffs applied over the period 1999 to 2005 by our set of Asian countries, i.e. China,

India, Indonesia, Korea, Japan, Pakistan, Philippines, Singapore and Thailand. We exclude Hong Kong

and Taiwan from our analysis since they are financial and trade centers, where the wholesale activity is

very important. The next section explains how we construct the firm level tariff. We also control for

10

country size using GDP from the Penn World Tables and the real exchange rate. We use the bilateral

real exchange rate between France and other countries using producer prices of France and importer

countries from the International Financial Statistics (IFS) of the IMF. Finally, to compute the proxy for

foreign competition at the extensive and intensive margin, we use the BACI dataset at the HS6 product

level by country of origin.14

In order to keep a constant sample throughout the paper and to establish the stability of the point es-

timates, we only consider firms that have information on all control variables. In the main specifications,

this leaves us with around 4,900 firm-country pairs for the 9 Asian countries in the period 1999-2005, a

total of 34,327 observations.

To perform the robustness check exercises, we use two additional firm level datasets. First, to identify

French multinational firms, we match our main dataset with firm level dataset on multinational groups

located in France from the Enquete Echanges Internationaux Intra-Groupe produced by the French Of-

fice of Industrial Studies and Statistics (SESSI). These data provide a good representation of the activity

of international groups located in France. They account for around 82 percent of total trade flows by

multinationals, and for 55 and 61 percent of total French imports and exports respectively. Second, to

add information on firms’ characteristics, we merge our main dataset with the Annual French Business

Surveys (EAE), available from INSEE. The EAE survey is conducted every year and provides detailed

firm-level information for all French firms with more than 20 employees whose main activity is in manu-

facturing. This survey allows us to have information on firms’ employment and labor productivity (value

added per worker).

Market Access: firm level tariff measures

To identify the impact of Asian’s trade liberalization on firms’ export patterns, we use tariffs at the

HS6 product level to construct a firm level measure of tariff which varies by year and country of origin.

11

For each firm f and country of destination j, we generate a simple average tariff over all HS6 products

exported by that firm to that country in year t. To avoid possible endogeneity issues, we use the simple

average of the tariffs faced by each firm in a particular country, instead of using the weighted average. In

the last section we present a robustness test with an alternative tariff measure constructed using weighted

average and fixing the weights at the beginning of the period. Tariffs for each firm-country-year, τfjt, are

computed in the following way: τfjt =
∑
g∈Gτgjt
Nfjt

, where G is the set of products exported by firm f and

Nfjt is the number of products that firm f exports to country j in year t. Previous empirical works focus

on tariff variations across industries where the firm produces. One of the few exceptions is the work of

Teshima (2009), who uses plant-level tariffs to study import competition and R&D in Mexico.

The changes in firm-level tariff will then capture market access differences across firms. These

differences depend on the type of HS6 products that each firm produces and exports. These tariff changes

are most likely exogenous from the perspective of French firms. In fact, Asian’s tariff changes were part

of the negotiation process aimed at allowing entrance into WTO. We will thus exploit this exogenous

variation in tariffs, to identify how changes in market access affect French firms’ export patterns.

Foreign competition measures: at the firm-country level

Our market access measure varies at the firm-country level. Thus, the foreign competition measure

should also vary at the firm-country level. To control for the foreign competition at this level, we build

three different measures. These measures, which capture different types of competition, are called:

(i) extensive margin competition (N◦ countries), (ii) extensive margin competition (N◦ firms) and (iii)

intensive margin competition. 15

The first measure is a product-specific concentration measure, based on the number of countries.

We compute this measure using import flows at the HS6 product level and country of origin from BACI

for 198 developed and developing countries.This measure captures, product by product, the geographical

12

concentration of imports in each of the Asian countries. Said this differently, it measures from how many

countries an HS6 product is imported by each of our possible destination countries. Using notations,

this concentration measure indicates the number of exporting countries, k, from which a product g is

imported in each of our possible destination countries, j, thus:

Hgj =

ng∑
k=1

(sjkg )
2 − 1/ng

1− 1/ng (1)

where time subscripts are omitted for simplicity. In this expression, sjkg = m
jk
g /mg, and m

jk
g is the

import value of product g imported by country j from country k and ng is the total number of countries

exporting the product g. 16

To obtain a competition measure at the firm-country level, the next step is to match the above product-

specific index with information on French exports at the firm-product-country of destination level over

the period 1999-2005. This allows us to compute the average of the Herfindahl index at the firm level.

To avoid compositional effects and potential endogeneity concerns, we take the average of this firm

level index keeping constant the HS6 product range of French exporters at 1999, while allowing the

concentration index to vary over time.17

In this first measure, the number of foreign competitors is proxied by the number of countries ex-

porting the same product line towards the Asian markets. To account for the competitive pressures that

could emerge from other firms selling the same product line to the same destination, a second measure

of competition is needed. To proxy foreign competition suffered from other firms, we introduce a second

measure that captures the degree of competition due to the mass of French firms selling the same HS6

product in the liberalized market.18 Using French Customs export data at the firm-product-country of

destination level, we construct an Herfindahl index that this time captures the concentration of export

shares of other French firms exporting same product to same country. The inverse of this index captures

the degree of competitive pressures generated by French firms selling in that country. Similar to the pre-

13

vious measure, we compute an average at the firm level of this index keeping constant the HS6 product

range exported by each firm in 1999.

After a liberalization event, it might also happen that the number of countries or firms exporting

a certain HS6 variety to destination j stays constant, while the volumes exported might change. This

in turns would certainly have an impact on the export decisions of French firms. To capture this type

of competition, we construct a measure of intensive margin competition faced by French firms in each

Asian markets. To do so, we combine import data at HS6 product and country of destination level from

BACI with the French customs dataset. Similarly to the other measures, we generate for each firm f and

country of destination j the average of import volumes faced by each HS6 product g over all products

exported by that firm to that country in year t. As usual, we keep constant the HS6 product range of each

firm at year 1999.

Baseline Specification

In this section we exploit the exogenous variation in tariffs across firm-country pairs to analyze the

role of Chinese unilateral trade liberalization on French firms’ export behavior relative to tariff changes

in other Asian destinations. To capture these effects, we will then estimate the following equation:

lnXfjt = ατfj,t−1 + β (τfj,t−1 × Chinaj) + γZjt + µf + κj + υt + fjt (2)

where the dependent variable, Xfjt, is the number of products exported by firm f to country j in year t.

In an alternative specification, we also explore how the intensive margin of trade is affected by Chinese

tariff reductions using as a dependent variable firms’ export sales. τfj,t−1 is the average tariff faced by

firm f when exporting to country j in year t − 1.19 Chinaj is a dummy variable equal to one if the

country of destination, j, is China. τfj,t−1 × Chinaj is an interaction term between the average lagged

tariff faced by each firm and the dummy variable for China. Zjt are controls at the country level that

14

vary over time. µf , κj and υt are respectively a full set of firm, country and year fixed effects. Finally,

fjt is the random error term.

The coefficient of the interaction term in equation (2), β, captures how China’s trade liberalization

affected French exports relative to the average effect of liberalization in other Asian destinations. The

total impact of Chinese import tariff cut on French firms’ product scope and export sales is captured by α

+ β. Our subsample of Asian countries includes: India, Indonesia, Korea, Japan, Pakistan, Philippines,

Singapore and Thailand. This sample represents a homogeneous group in terms of trade integration and

geographical proximity.

Nevertheless, to ensure that the selection of countries is not affecting the results, several robustness

tests are carried out. Sub-section titled Alternative country samples in Section V presents two sensitivity

tests. The first test restricts the sample to least developed (henceforth LDC) Asian countries, excluding

high income countries like Korea, Japan and Singapore. The other test consists in excluding one by one

each of the Asian LDC countries in the sample.

The identification strategy in equation (2) disentangles the variation in the extensive (intensive) mar-

gin of exports due to changes in China’s trade barriers. We expect a negative and significant α coefficient:

tariff reduction in destination j increases the number of products exported (extensive margin of trade)

and export sales (intensive margin of trade) towards each Asian destination. For what concern, our other

coefficient of interest, β, we also expect it to be negative and significant. This result will indicate that

Chinese tariff reduction induces French firms to expand by a larger amount their exports towards China

relative to the comparison group. Since our variable of interest (tariff measure) varies at the firm-country

level, in all the estimations, disturbances are corrected for clustering across firm-country pairs.

We control for macroeconomic shocks, firm and destination unobservable characteristics that might

affect French exports, by using year, firm and destination fixed effects. It is important to stress that the

outstanding role of China in the world trading system is not only related to trade liberalization, but also to

its remarkable economic growth which has taken place during the same period. Thus, failing to control

15

for country observable characteristics that might evolve over time can generate misleading results. To

deal with this issue, we include the GDP and real exchange rates (RER) for each destination country.

We control for variations in real GDP across countries over time using the logarithm of lagged real GDP

to capture differences across countries in terms of economic development. Finally, we take into account

the effect of bilateral variations in RER. To do this, we compute the bilateral real exchange rate between

France and each Asian destination country using producer prices in France and in the importing country.

Controlling for Foreign Competition

To account for third country competition effect faced by each firm in the destination country, the

reduced form equation in (2), becomes:

lnXfjt = ατfj,t−1 + β (τfj,t−1 × Chinaj) + γZjt + ρFCfjt + µf + κj + υt + fjt (3)

where FCfjt is a vector containing the three foreign competition measures at firm-country. As de-

scribed in sub-section Foreign competition measures of Section III, these measures control for different

types of competitive pressures that each French firm is facing in each destination market.

IV. RESULTS

Baseline results: Market Access and Export Patterns

In this section we present the results of the baseline estimations which explores how Asian tariff

changes affect firms’ export performance. Estimation results of equation (2) are reported in Tables 1

and 2. The former reports the results using the number of exported products as a dependent variable,

16

while the latter focus on export sales per firm. In every table presented we control for unobserved firm,

destination and year fixed effects. We start with the extensive margin of exports.

Column (1) in Table 1 shows that tariff reductions increase the number of French exported products

across all destinations. In columns (2) and (3) we include country level controls. Column (2) shows

that our results are also robust to cross countries price variations, proxied by the real exchange rate at

the country level (RER). The coefficient of RER is negative and significant as expected. Column (3)

introduces real GDP to capture differences across countries in terms of economic growth, development

and market size. As expected the coefficient of real GDP is positive and significant. The coefficient

on tariffs remains stable and robust to the inclusion of country observable characteristics varying over

time. This finding implies that tariff changes are not picking up effects of market size, economic growth

or price variations across countries. The point estimate in column (3) indicates that the 3.5 percentage

points decline in the average MFN tariff across Asian countries in our sample is associated to almost 1.6

percent expansion in the average firm export product scope.

Column (4) includes our main variable of interest: the interaction term between the average tariff

at the firm level and the dummy equal to one when the importer country is China. The coefficient is

negative and statistically significant, at the 1% confidence level. This result indicates that China’s tariff

cuts have, as expected, a positive effect on the amount of exported products towards this destination.

The coefficient of the interaction term shows the impact of Chinese tariff cuts on French exports relative

to the average effect of liberalization in other Asian destinations. The point estimate implies that a 10

percentage points fall in Chinese tariff results in almost 16 percent expansion more when a firm exports

to China relative to the Asian sample. During our period of analysis, from 1999 to 2005, Chinese tariffs

declined on average 7 percentage points. Thus, according to our results, this would imply that the average

firm experiences an additional expansion of almost 11 percent in the number of products exported when

exporting to China relative to other Asian destinations. The net effect of Chinese unilateral liberalization

on French firms’ product scope is captured by the sum of the coefficient on tariff and the interaction term

17

(α and β in equation (3)). In this case the quantification of the results is very similar.

Table 1: The impact of Chinese unilateral trade liberalization on the extensive margin of exports

Dependent variable Log Exported products of firm f in country j in year t
(1) (2) (3) (4)

Tarifffj,t−1 -0.492*** -0.497*** -0.453*** -0.167
(0.136) (0.136) (0.137) (0.150)

Tarifffj,t−1 × Chinaj -1.586***
(0.312)

RERj,t−1 -0.311* -0.045 -0.141
(0.164) (0.170) (0.171)

GDPj,t−1 0.316*** 0.235**
(0.094) (0.096)

Firm fixed effects Yes Yes Yes Yes
Country fixed effects Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes
Observations 34,327 34,327 34,327 34,327
R2 0.542 0.542 0.543 0.543
Notes: The regressions are OLS estimations of equation (2) for the period 1999-2005. The dependent variable is the logarithm of the number of products
exported to country j in year t by firm f . Fixed effects by firm, country and year and a constant are included in all specifications. The destinations are China
and other Asian countries that already integrate WTO such as India, Indonesia, Korea, Japan, Pakistan, Philippines, Singapore and Thailand. Tarifffjt is
the tariff measure faced by firm f when exporting to country j in year t. Tarifffjt × Chinaj is an interaction term between the firm level tariff measure
and a dummy variable equal to one when the country of destination of exports is China and zero otherwise, Chinaj . GDPjt is the natural log of the GDP of
country j from the Penn World Tables. RERjt is the bilateral real exchange rate between France and China and countries in the control group using producer
prices of France and importer countries from the International Financial Statistics (IFS). Heteroskedasticity-robust standard errors clustered by firm-country
pairs are reported in parentheses. ∗ ∗ ∗, ∗∗, and ∗ indicate significance at the 1, 5 and 10 percent levels respectively.

Table 2 reports similar results for the intensive margin of exports. After controlling for observable

country level characteristics in columns (2) and (3), the average reduction of Asian tariffs leads to almost

3 percent increase in French firms’ export sales. The coefficient of the interaction term between the tariff

measure with the China dummy variable in column (4) shows a larger effect due to Chinese liberalization

relative to the average Asian tariff cuts. This allow us to conclude that China’s tariff reductions increase

by a larger amount export sales of French firms towards this destination relative to the others: Chinese

tariff cuts boost by almost 19 percent (7 times β) French export sales. While the net effect of Chinese

liberalization on French firms export sales is 21 percent (7 times (α + β)).

18

Table 2: The impact of Chinese unilateral trade liberalization on the intensive margin of exports

Dependent variable Log Export sales of firm f in country j in year t
(1) (2) (3) (4)

Tarifffj,t−1 -0.868*** -0.876*** -0.834*** -0.350*
(0.182) (0.182) (0.184) (0.195)

Tarifffj,t−1 × Chinaj -2.678***
(0.416)

RERj,t−1 -0.536** -0.279 -0.441**
(0.212) (0.221) (0.221)

GDPj,t−1 0.305*** 0.169
(0.117) (0.118)

Firm fixed effects Yes Yes Yes Yes
Country fixed effects Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes
Observations 34,327 34,327 34,327 34,327
R2 0.574 0.574 0.574 0.576
Notes: The regressions are OLS estimations of equation (2) for the period 1999-2005. The dependent variable is the logarithm of firm f ’s export sales to
country j in year t. Fixed effects by firm, country and year and a constant are included in all specifications. The destinations are China and other Asian
countries that already integrate WTO such as India, Indonesia, Korea, Japan, Pakistan, Philippines, Singapore and Thailand. Tarifffjt is the tariff measure
faced by firm f when exporting to country j in year t. Tarifffjt × Chinaj is an interaction term between the firm level tariff measure and a dummy variable
equal to one when the country of destination of exports is China and zero otherwise, Chinaj . GDPjt is the natural log of the GDP of country j from the Penn
World Tables. RERjt is the bilateral real exchange rate between France and China and countries in the control group using producer prices of France and
importer countries from the International Financial Statistics (IFS). Heteroskedasticity-robust standard errors clustered by firm-country pairs are reported in
parentheses. ∗ ∗ ∗, ∗∗, and ∗ indicate significance at the 1, 5 and 10 percent levels respectively.

Unilateral Trade Liberalization and Foreign competition

The findings presented in the previous section might suffer from an important omitted variable bias

related to foreign competition faced by each firm in the destination market. To control for this issue, the

baseline specification in (2) is extended to include our three firm-level measures of foreign competition.20

A positive and significant coefficient for both Herfindahl indexes implies that an increase in foreign

competition in destination j faced by each firm (i.e. a reduction in the firm level Herfindahl concentra-

tion index) reduces the number of products exported and export sales to that destination. On the other

hand, for the intensive margin competition measure, we expect a negative and significant coefficient.

This measure captures the variation on the volume of imports by incumbent competitors towards the lib-

eralized market. Chinese unilateral liberalization will increase the volume of imports of firms/countries

19

already selling in China. This in turn might reduce French firms exports towards that destination due to

tougher competition at the intensive margin.

Tables 3 and 4 report the estimation results of equation (3) for the number of exported products and

for export sales respectively. Columns (1) to (3) introduce the different measures of foreign competition.

As expected the coefficients on both Herfindahl indexes (extensive margin competition proxies) are pos-

itive and significant in all specifications, suggesting that the higher the competitive pressures faced by

the average French firm in a destination market, the lower will be the number of products exported and

export sales to that destination. While the intensive margin competition proxy is negative and signifi-

cant implying that the greater increase in the volume of imports of incumbent competitors of the same

products to the same destination after the liberalization reduces French firms’ export propensity. As a

benchmark, column (4) and (6) report the baseline estimation results presented in column (3) and (4) of

Table 1. Once we take into account the foreign competition pressures induced by the unilateral trade lib-

eralization faced by French firms, the coefficient of the average Asian tariff cuts is negative but no longer

significant (column 5) and the coefficient of interest is still negative and significant but the magnitude is

reduced by 35 percent (column 7). The results presented in Table 4 for the intensive margin of exports

are in the same line.

Findings in Tables 3 and 4 indicate that once we address the possible omitted variable issue, by

controlling explicitly for foreign competition at the firm-country level, the 7 percentage points reduction

of Chinese tariff cuts result in an additional expansion of almost 7 percent (instead of 11) in the number

of products exported and 12 percent in export sales (instead of 19) by the average firm when exporting

to China relative to other Asian destinations.

20

T a
bl

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3:

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21

T a
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4:

T
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co

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tr

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Fo

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s
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)
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)
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)
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)
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)
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)
(7

)

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(N
◦

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s)
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03
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44
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rt

in
g

to
co

un
tr

y
j

in
ye

ar
t.

Ta
ri

ff
f

j
t

×
C

hi
na

j
is

an
in

te
ra

ct
io

n
te

rm
be

tw
ee

n
th

e
fir

m
le

ve
l

ta
ri

ff
m

ea
su

re
an

d
a

du
m

m
y

va
ri

ab
le

eq
ua

lt
o

on
e

w
he

n
th

e
co

un
tr

y
of

de
st

in
at

io
n

of
ex

po
rt

s
is

C
hi

na
an

d
ze

ro
ot

he
rw

is
e,

C
hi

na
j

.T
he

ex
te

ns
iv

e
m

ar
gi

n
co

m
pe

tit
io

n f
j

t
(N

◦
co

un
tr

ie
s)

va
ri

ab
le

is
th

e
fir

m
-l

ev
el

H
er

fin
da

hl
in

de
x,

w
he

re
th

e
nu

m
be

ro
ff

or
ei

gn
co

m
pe

tit
or

s
is

pr
ox

ie
d

by
th

e
nu

m
be

r
of

co
un

tr
ie

s
ex

po
rt

in
g

th
e

sa
m

e
pr

od
uc

tl
in

e
th

at
th

e
Fr

en
ch

fir
m

s
to

w
ar

ds
th

e
A

si
an

m
ar

ke
ts

.T
he

ex
te

ns
iv

e
m

ar
gi

n
co

m
pe

tit
io

n f
j

t
(N

◦
fir

m
s)

va
ri

ab
le

is
th

e
fir

m
-l

ev
el

H
er

fin
da

hl
in

de
x,

w
he

re
th

e
nu

m
be

ro
ff

or
ei

gn
co

m
pe

tit
or

s
is

pr
ox

ie
d

by
th

e
nu

m
be

ro
fo

th
er

Fr
en

ch
fir

m
s

ex
po

rt
in

g
th

e
sa

m
e

pr
od

uc
tl

in
e

to
w

ar
ds

th
e

A
si

an
m

ar
ke

ts
.

Fi
na

lly
,t

he
in

te
ns

iv
e

m
ar

gi
n

co
m

pe
tit

io
n f

j
t

va
ri

ab
le

is
th

e
av

er
ag

e
im

po
rt

vo
lu

m
es

at
th

e
pr

od
uc

tl
ev

el
fa

ce
d

by
ea

ch
fir

m
in

th
e

de
st

in
at

io
n

m
ar

ke
ts

.
G

D
P j

t
is

th
e

na
tu

ra
ll

og
of

th
e

G
D

P
of

co
un

tr
y

j
fr

om
th

e
Pe

nn
W

or
ld

Ta
bl

es
.

R
E

R
j

t
is

th
e

bi
la

te
ra

l
re

al
ex

ch
an

ge
ra

te
be

tw
ee

n
Fr

an
ce

an
d

C
hi

na
an

d
co

un
tr

ie
s

in
th

e
co

nt
ro

lg
ro

up
us

in
g

pr
od

uc
er

pr
ic

es
of

Fr
an

ce
an

d
im

po
rt

er
co

un
tr

ie
s

fr
om

th
e

In
te

rn
at

io
na

lF
in

an
ci

al
St

at
is

tic
s

(I
FS

).
H

et
er

os
ke

da
st

ic
ity

-r
ob

us
ts

ta
nd

ar
d

er
ro

rs
cl

us
te

re
d

by
fir

m
-c

ou
nt

ry
pa

ir
s

ar
e

re
po

rt
ed

in
pa

re
nt

he
se

s.
∗∗

∗,
∗∗

,
an

d
∗

in
di

ca
te

si
gn

ifi
ca

nc
e

at
th

e
1,

5
an

d
10

pe
rc

en
tl

ev
el

s
re

sp
ec

tiv
el

y.

22

Disentangling Input and Output trade liberalization

A further question worthwhile exploring is related to the types of goods: which are the French

exported products that are affected the most by Asian liberalization? To test the relationship between

market access and types of traded products, we estimate equation (3) by splitting the sample into firms

producing intermediate and final goods.

To classify HS6 products into intermediate and final products, we use BEC (Broad Economic Cat-

egories) classification from United Nations.21 In line with the firm-level tariff built in section III, we

construct construct a similar measure for both intermediate and final goods using information at the HS6

to classify products.

Table 5 reports the estimate results for our two subsamples of firms: firms exporting intermediate and

final products respectively. When controlling for observable country characteristics and foreign compet-

itive pressures, we find that Chinese tariff cuts are mainly significant for French exports of intermediate

products (columns (1) and (3)). Our point estimate implies that a 10 percentage points fall in Chinese ap-

plied tariff, increases by almost 17 percent the number of intermediate products exported and by almost

28 percent French export sales to China relative to the other Asian destinations. When we restrict the

sample to firms exporting only final goods, interestingly we do not find any significant effect of Asian or

Chinese liberalization on French extensive margin (column (2)), while the effect on the intensive margin

is only significant at the 10 percent level (column (4)).

These findings confirm the results found by a number of recent works on the increasing role of

intermediate inputs in international trade and the effects of input liberalization on firm performance.

Amiti and Konings (2007), using firm-level data for Indonesia, show that the effect of reductions on input

tariffs on firm total factor productivity improvements is much important than the effect of reductions on

final good tariffs. Goldberg et al. (2010), using firm level data for India, demonstrate that input tariff

liberalization allows firms to expand their product scope for the domestic market. Bas and Strauss-Khan

23

(2011), using firm level data for France, show that using imported intermediate goods improves French

firms export scope, the number of export destination countries and export sales. Along the same line,

Bas (2012), using firm level data for Argentina, finds that input tariff cuts have a positive effect on firms’

export decision.

24

T a
bl

e
5:

R
ob

us
tn

es
s

ch
ec

ks
:a

lte
rn

at
iv

e
su

bs
am

pl
es

D
ep

en
de

nt
va

ri
ab

le
L

og
nu

m
be

ro
fe

xp
or

te
d

pr
od

uc
ts

L
og

ex
po

rt
sa

le
s

In
te

rm
ed

ia
te

pr
od

uc
ts

Fi
na

lp
ro

du
ct

s
In

te
rm

ed
ia

te
pr

od
uc

ts
Fi

na
lp

ro
du

ct
s

(1
)

(2
)

(3
)

(4
)

T a
ri

ff
f

j,
t−

1
-0

.0
05

0.
40

3
-0

.4
99

0.
04

1
(0

.3
00

)
(0

.2
46

)
(0

.4
21

)
(0

.3
18

)

Ta
ri

ff
f

j,
t−

1
×

C
hi

na
j

-1
.6

84
**

-0
.6

64
-2

.7
64

**
*

-1
.1

95
*

(0
.7

25
)

(0
.5

41
)

(0
.9

81
)

(0
.6

54
)

E
xt

en
si

ve
m

ar
gi

n
co

m
pe

tit
io

n f
jt

(N
◦

co
un

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ie

s)
0.

90
9*

**
0.

89
8*

**
1.

65
1*

**
1.

08
6*

**
(0

.1
64

)
(0

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67

)
(0

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98

)
(0

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94

)

E
xt

en
si

ve
m

ar
gi

n
co

m
pe

tit
io

n f
jt

(N
◦

fir
m

s)
0.

89
2*

**
0.

93
6*

**
1.

50
1*

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1.

40
6*

**
(0

.0
83

)
(0

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48

)
(0

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18

)
(0

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80

)

In
te

ns
iv

e
m

ar
gi

n
co

m
pe

tit
io

n f
jt

-0
.0

56
**