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Chinese Trade Reforms, Market Access and Foreign Competition - The Patterns of French Exporters
Working paper by Maria Bas, Pamela Bombarda, 2013
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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
WPS6330
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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
.1
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2002 2003 2004
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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
e
3:
T
hi
rd
co
un
tr
y
ef
fe
ct
s.
Fo
re
ig
n
co
m
pe
tit
io
n
m
ea
su
re
s
at
th
e
fir
m
-c
ou
nt
ry
le
ve
l
D
ep
en
de
nt
va
ri
ab
le
L
og
nu
m
be
ro
fe
xp
or
te
d
pr
od
uc
ts
(1
)
(2
)
(3
)
(4
)
(5
)
(6
)
(7
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
co
un
tr
ie
s)
1.
08
0*
**
0.
67
2*
**
0.
88
9*
**
0.
75
8*
**
0.
75
2*
**
(0
.0
93
)
(0
.0
91
)
(0
.0
93
)
(0
.0
89
)
(0
.0
89
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
fir
m
s)
0.
90
0*
**
1.
02
4*
**
0.
80
6*
**
0.
80
7*
**
(0
.0
58
)
(0
.0
59
)
(0
.0
54
)
(0
.0
54
)
In
te
ns
iv
e
m
ar
gi
n
co
m
pe
tit
io
n f
jt
-0
.0
90
**
*
-0
.0
88
**
*
-0
.0
88
**
*
(0
.0
06
)
(0
.0
06
)
(0
.0
06
)
Ta
ri
ff
f
j,
t−
1
-0
.4
92
**
*
-0
.1
85
-0
.1
67
0.
00
2
(0
.1
36
)
(0
.1
29
)
(0
.1
50
)
(0
.1
42
)
Ta
ri
ff
f
j,
t−
1
×
C
hi
na
j
-1
.5
86
**
*
-1
.0
41
**
*
(0
.3
12
)
(0
.2
93
)
C
ou
nt
ry
le
ve
lc
on
tr
ol
s
N
o
N
o
N
o
Y
es
Y
es
Y
es
Y
es
Fi
rm
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
C
ou
nt
ry
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
ea
rfi
xe
d
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
O
bs
er
va
tio
ns
34
,3
27
34
,3
27
34
,3
27
34
,3
27
34
,3
27
34
,3
27
34
,3
27
R
2
0.
54
7
0.
55
5
0.
56
0
0.
54
2
0.
58
2
0.
54
3
0.
58
2
N
ot
es
:
T
he
re
gr
es
si
on
s
ar
e
O
L
S
es
tim
at
io
ns
of
eq
ua
tio
n
(3
)
fo
r
th
e
pe
ri
od
19
99
-2
00
5.
T
he
de
pe
nd
en
tv
ar
ia
bl
e
is
th
e
lo
ga
ri
th
m
of
th
e
nu
m
be
r
of
ex
po
rt
ed
pr
od
uc
ts
to
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t.
Fi
xe
d
ef
fe
ct
s
by
fir
m
,c
ou
nt
ry
an
d
ye
ar
an
d
a
co
ns
ta
nt
ar
e
in
cl
ud
ed
in
al
ls
pe
ci
fic
at
io
ns
.
T
he
de
st
in
at
io
ns
ar
e
C
hi
na
an
d
ot
he
r
A
si
an
co
un
tr
ie
s
th
at
al
re
ad
y
in
te
gr
at
e
W
TO
su
ch
as
In
di
a,
In
do
ne
si
a,
K
or
ea
,J
ap
an
,P
ak
is
ta
n,
Ph
ili
pp
in
es
,S
in
ga
po
re
an
d
T
ha
ila
nd
.
Ta
ri
ff
f
j
t
is
th
e
ta
ri
ff
m
ea
su
re
fa
ce
d
by
fir
m
f
w
he
n
ex
po
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
lt
ar
iff
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
r
of
fo
re
ig
n
co
m
pe
tit
or
s
is
pr
ox
ie
d
by
th
e
nu
m
be
r
of
ot
he
r
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
.F
in
al
ly
,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
lr
ea
le
xc
ha
ng
e
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.
21
T a
bl
e
4:
T
hi
rd
co
un
tr
y
ef
fe
ct
s.
Fo
re
ig
n
co
m
pe
tit
io
n
m
ea
su
re
s
at
th
e
fir
m
-c
ou
nt
ry
le
ve
l
D
ep
en
de
nt
va
ri
ab
le
L
og
ex
po
rt
sa
le
s
(1
)
(2
)
(3
)
(4
)
(5
)
(6
)
(7
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
co
un
tr
ie
s)
2.
03
9*
**
1.
32
4*
**
1.
44
1*
**
1.
43
1*
**
0.
59
4*
**
(0
.1
21
)
(0
.1
14
)
(0
.1
17
)
(0
.1
17
)
(0
.0
95
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
fir
m
s)
1.
57
9*
**
1.
64
7*
**
1.
64
7*
**
1.
02
6*
**
(0
.0
79
)
(0
.0
80
)
(0
.0
80
)
(0
.0
64
)
In
te
ns
iv
e
m
ar
gi
n
co
m
pe
tit
io
n f
jt
-0
.0
49
**
*
-0
.0
49
**
*
-0
.0
10
(0
.0
08
)
(0
.0
08
)
(0
.0
07
)
Ta
ri
ff
f
j,
t−
1
-0
.8
68
**
*
-0
.6
87
**
*
-0
.3
50
*
-0
.6
01
**
*
(0
.1
82
)
(0
.1
78
)
(0
.1
95
)
(0
.1
59
)
Ta
ri
ff
f
j,
t−
1
×
C
hi
na
j
-2
.6
78
**
*
-1
.8
24
**
*
(0
.4
16
)
(0
.3
31
)
C
ou
nt
ry
le
ve
lc
on
tr
ol
s
N
o
N
o
N
o
Y
es
Y
es
Y
es
Y
es
Fi
rm
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
C
ou
nt
ry
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
ea
rfi
xe
d
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
O
bs
er
va
tio
ns
34
,3
27
34
,3
27
34
,3
27
34
,3
27
34
,3
27
34
,3
27
34
,3
27
R
2
0.
58
5
0.
59
9
0.
60
0
0.
57
4
0.
60
1
0.
57
6
0.
59
3
N
ot
es
:
T
he
re
gr
es
si
on
s
ar
e
O
L
S
es
tim
at
io
ns
of
eq
ua
tio
n
(3
)f
or
th
e
pe
ri
od
19
99
-2
00
5.
T
he
de
pe
nd
en
tv
ar
ia
bl
e
is
th
e
lo
ga
ri
th
m
of
th
e
ex
po
rt
sa
le
s
in
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t.
Fi
xe
d
ef
fe
ct
s
by
fir
m
,c
ou
nt
ry
an
d
ye
ar
an
d
a
co
ns
ta
nt
ar
e
in
cl
ud
ed
in
al
ls
pe
ci
fic
at
io
ns
.
T
he
de
st
in
at
io
ns
ar
e
C
hi
na
an
d
ot
he
r
A
si
an
co
un
tr
ie
s
th
at
al
re
ad
y
in
te
gr
at
e
W
TO
su
ch
as
In
di
a,
In
do
ne
si
a,
K
or
ea
,J
ap
an
,P
ak
is
ta
n,
Ph
ili
pp
in
es
,S
in
ga
po
re
an
d
T
ha
ila
nd
.
Ta
ri
ff
f
j
t
is
th
e
ta
ri
ff
m
ea
su
re
fa
ce
d
by
fir
m
f
w
he
n
ex
po
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
tr
ie
s)
0.
90
9*
**
0.
89
8*
**
1.
65
1*
**
1.
08
6*
**
(0
.1
64
)
(0
.1
67
)
(0
.1
98
)
(0
.1
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*
**
1.
40
6*
**
(0
.0
83
)
(0
.1
48
)
(0
.1
18
)
(0
.1
80
)
In
te
ns
iv
e
m
ar
gi
n
co
m
pe
tit
io
n f
jt
-0
.0
56
**
*
-0
.0
67
**
*
-0
.0
23
*
-0
.0
37
**
*
(0
.0
10
)
(0
.0
12
)
(0
.0
13
)
(0
.0
14
)
O
bs
er
va
tio
ns
11
,3
75
8,
97
3
11
,3
75
8,
97
3
R
2
0.
60
1
0.
65
6
0.
63
9
0.
68
8
M
N
F
N
on
-M
N
F
M
N
F
N
on
-M
N
F
T a
ri
ff
f
j,
t−
1
-0
.4
87
*
0.
02
3
-0
.6
03
*
-0
.0
25
(0
.2
68
)
(0
.1
81
)
(0
.3
35
)
(0
.2
27
)
Ta
ri
ff
f
j,
t−
1
×
C
hi
na
j
-2
.2
29
**
*
-1
.1
31
**
*
-3
.1
41
**
*
-2
.2
13
**
*
(0
.6
73
)
(0
.3
36
)
(0
.8
61
)
(0
.4
55
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
co
un
tr
ie
s)
0.
71
4*
**
0.
98
4*
**
1.
65
0*
**
1.
28
7*
**
(0
.1
48
)
(0
.1
18
)
(0
.2
01
)
(0
.1
37
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
fir
m
s)
1.
00
9*
**
1.
01
8*
**
1.
89
7*
**
1.
44
3*
**
(0
.0
98
)
(0
.0
70
)
(0
.1
39
)
(0
.0
90
)
In
te
ns
iv
e
m
ar
gi
n
co
m
pe
tit
io
n f
jt
-0
.1
19
**
*
-0
.0
76
**
*
-0
.0
81
**
*
-0
.0
30
**
*
(0
.0
12
)
(0
.0
07
)
(0
.0
15
)
(0
.0
09
)
O
bs
er
va
tio
ns
9,
23
0
25
,0
97
9,
23
0
25
,0
97
R
2
0.
54
9
0.
55
6
0.
53
7
0.
58
5
C
ou
nt
ry
le
ve
lc
on
tr
ol
s
Y
es
Y
es
Y
es
Y
es
Fi
rm
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
C
ou
nt
ry
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
ea
rfi
xe
d
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
N
ot
es
:
T
he
re
gr
es
si
on
s
ar
e
O
L
S
es
tim
at
io
ns
of
eq
ua
tio
n
(3
)
fo
r
th
e
pe
ri
od
19
99
-2
00
5
fo
r
th
e
su
bs
am
pl
e
of
fir
m
s
ex
po
rt
in
g
in
te
rm
ed
ia
te
an
d
fin
al
go
od
s
(i
n
th
e
bo
tto
m
pa
rt
of
th
e
ta
bl
e)
.
In
co
lu
m
ns
(1
)
to
(3
)
th
e
de
pe
nd
en
tv
ar
ia
bl
e
is
th
e
lo
ga
ri
th
m
of
th
e
nu
m
be
r
of
ex
po
rt
ed
pr
od
uc
ts
to
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t,
an
d
in
co
lu
m
ns
(4
)
to
(6
)
th
e
de
pe
nd
en
tv
ar
ia
bl
e
is
th
e
lo
ga
ri
th
m
of
th
e
ex
po
rt
sa
le
s
in
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t.
C
on
tr
ol
va
ri
ab
le
s
de
fin
iti
on
s
ar
e
re
po
rt
ed
in
ta
bl
e
4.
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.
25
The Role of Multinational Firms
The evidence presented in the previous section emphasizes the importance of French intermediate
goods exports during Chinese liberalization. This result can be explained by considering the predominant
role of multinational firms and intra-firm trade in the world economy. To account for this important
dimension, in this section we split our sample into multinational firms located in France which export to
Asian countries on the one side, and the remaining exporting firms on the other side.22
Columns (1) and (3) in the bottom part of Table 5 show the results for the subsample of multinational
firms located in France, and columns (2) to (4) for the subsample of ordinary exporters. Comparing the
results of these two subsamples of firms, it is straightforward to notice the larger effect of both Asian and
Chinese liberalization on multinational firms’ extensive margin: the effect of liberalization is two times
larger for MNFs. Our point estimate suggests that a 10 percentage points fall in Chinese tariff results in
almost 22 percent expansion for products exported to China by multinational firms relative to other Asian
countries (column (1)). While the amount of products exported by non-multinational exporters increases
only by 11 percent more for the average exporting firm to China relative to Asian destinations (column
(2)). Columns (3) and (4) present the results for the intensive margin of trade. In line with our previous
findings, the effect of Chinese tariff reductions on export sales is more pronounced for multinational
firms than for non-multinational exporting firms.
V. ROBUSTNESS CHECKS
Firm level controls
In this section we explicitly deal with potential omitted variable concerns that might affect the pre-
vious results. To test that our main variable of interest, firm-level tariff, is not picking up the effects of
26
observable firm characteristics which varies over time, we carry on an additional robustness check. In
specification (3) we include two additional control variables: firms’ size and labor productivity.23
Table 6 reports the results where we account for firms’ size (employment) and firms’ labor produc-
tivity. Despite the reduction in the number of observations, our coefficient of interest remains negative
and significant implying that Chinese tariff reductions increase both the number of exported products
(column (2)) as well as export sales (column (4)) to China relative to other Asian destinations. These
findings confirm that the previous results do not suffer from omitted variable concerns.
Potential endogeneity issues and alternative tariff measures
Tariff measure used in the previous estimations is constructed as a simple average of HS6 tariffs
over all products exported by a firm to destination. In the estimation procedure, to avoid the potential
endogeneity bias between tariff measure and the number of exported products at each point in time, we
used tariffs lagged by one period. In this section we propose an alternative way of dealing with this
endogeneity issue. The alternative tariff measure is a weighted average fixing the weights in the initial
year, 1999. So this tariff measure is based on the basket of all HS6 products exported by each firm in
1999, to each specific destination. This strategy should avoid that the tariff changes as a result of the
increase in export products.
Table 7 reports the estimation results.24 Our results remain robust when using this alternative tariff
measure. Once taking into account foreign competitive pressures, Asian and Chinese unilateral trade
liberalization has a positive effect on both the number of products exported and export sales by French
firms.
27
T a
bl
e
6:
R
ob
us
tn
es
s
ch
ec
ks
:fi
rm
le
ve
lc
on
tr
ol
s
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
(1
)
(2
)
(3
)
(4
)
L
ab
or
pr
od
uc
tiv
ity
f
,t
−1
0.
06
1*
0.
05
1
0.
14
4*
**
0.
12
8*
**
(0
.0
34
)
(0
.0
34
)
(0
.0
34
)
(0
.0
34
)
Si
ze
f
,t
−1
0.
11
5*
*
0.
11
1*
*
0.
24
9*
**
0.
24
2*
**
(0
.0
54
)
(0
.0
53
)
(0
.0
65
)
(0
.0
63
)
Ta
ri
ff
f
j,
t−
1
-0
.0
77
-0
.6
64
**
(0
.2
22
)
(0
.2
84
)
Ta
ri
ff
f
j,
t−
1
×
C
hi
na
j
-2
.4
82
**
*
-3
.9
80
**
*
(0
.5
48
)
(0
.9
00
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
co
un
tr
ie
s)
1.
00
6*
**
1.
44
1*
**
(0
.1
31
)
(0
.1
59
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
fir
m
s)
1.
06
9*
**
1.
79
9*
**
(0
.0
68
)
(0
.0
95
)
In
te
ns
iv
e
m
ar
gi
n
co
m
pe
tit
io
n f
jt
-0
.0
94
**
*
-0
.0
60
**
*
(0
.0
08
)
(0
.0
11
)
(0
.2
20
)
(0
.2
93
)
C
ou
nt
ry
le
ve
lc
on
tr
ol
s
Y
es
Y
es
Y
es
Y
es
Fi
rm
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
C
ou
nt
ry
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
ea
rfi
xe
d
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
O
bs
er
va
tio
ns
17
,2
41
17
,2
41
17
,2
41
17
,2
41
R
2
0.
51
1
0.
53
6
0.
52
9
0.
56
5
N
ot
es
:
T
he
re
gr
es
si
on
s
ar
e
O
L
S
es
tim
at
io
ns
of
eq
ua
tio
n
(3
)f
or
th
e
pe
ri
od
19
99
-2
00
5.
In
co
lu
m
ns
(1
)a
nd
(2
)t
he
de
pe
nd
en
tv
ar
ia
bl
e
is
th
e
lo
ga
ri
th
m
of
th
e
nu
m
be
ro
fe
xp
or
te
d
pr
od
uc
ts
to
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t,
an
d
in
co
lu
m
ns
(3
)
an
d
(4
)
th
e
de
pe
nd
en
tv
ar
ia
bl
e
is
th
e
lo
ga
ri
th
m
of
th
e
ex
po
rt
sa
le
s
in
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t.
C
ou
nt
ry
le
ve
lc
on
tr
ol
va
ri
ab
le
s
de
fin
iti
on
s
ar
e
re
po
rt
ed
in
ta
bl
e
4.
Fi
rm
si
ze
f
t
re
pr
es
en
ts
th
e
lo
ga
ri
th
m
of
em
pl
oy
m
en
ta
tt
he
fir
m
le
ve
la
nd
fir
m
la
bo
r
pr
od
uc
tiv
ity
f
t
is
m
ea
su
re
d
by
va
lu
e
ad
de
d
pe
r
w
or
ke
r.
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.
28
Table 7: Robustness checks: alternative tariff measures
Dependent variable Log number of exported products Log export sales
(1) (2)
Tariff 99fj,t−1 -0.172*** -0.552***
(0.061) (0.126)
Tariff 99fj,t−1 × Chinaj -0.301** -0.806***
(0.150) (0.301)
Extensive margin competitionfjt(N◦ countries) 0.388*** 0.513***
(0.038) (0.078)
Extensive margin competitionfjt(N◦ firms) 0.445*** 0.970***
(0.023) (0.050)
Intensive margin competitionfjt -0.054*** -0.019***
(0.003) (0.006)
Country level controls Yes Yes
Firm fixed effects Yes Yes
Country fixed effects Yes Yes
Year fixed effects Yes Yes
Observations 24,394 24,394
R2 0.596 0.613
Notes: The regressions are OLS estimations of equation (3) for the period 1999-2005. In columns (1) to (4) the dependent variable is the logarithm of the
number of exported products to country j by firm f in year t, and in columns (5) to (8) the dependent variable is the logarithm of the export sales in country
j by firm f in year t. Fixed effects by firm, country and year and a constant are included in all specifications. Tarifffjt is the tariff measure faced by firm
f when exporting to country j in year t. Using HS6 product level tariff data from TRAINS, we construct the firm level tariff by taking the average of tariff
over the basket of all the HS6 products exported by firm f in the initial year (1999) to country j. This basket is kept fixed over the period. Country level
control variables definitions are reported in table 4. ∗ ∗ ∗, ∗∗, and ∗ indicate significance at the 1, 5 and 10 percent levels respectively.
Alternative country samples
In the previous regressions, the sample of Asian countries selected as a group of comparison included
countries that are homogeneous in terms of trade integration and geographical proximity, but they differ
in terms of economic development. Since the export patterns of French firms might differ according to
the income level of the destination country, in this section we carry out two additional sensitivity tests.
We first restrict the sample to LDC Asian economies and exclude the high-income Asian countries
like Korea, Japan and Singapore. Table 8 reports these results. The previous findings are robust to the
countries selected as a group of comparison. When we compare the results in columns (2) and (3), on
the one hand, and columns (5) and (6), on the other, the effect of Chinese tariff liberalization relative to
29
other Asian countries liberalization on export scope and export sales of French firms is almost two times
larger for the multinational firms relative to ordinary exporters.
Finally, we carry out a last sensitivity test to see weather our results are not driven by the inclusion
of any particular country in the comparison group. Based on the subsample of least developed Asian
countries, we start excluding one country at a time of the sample. Table 9 presents the results. The
name of the country that is excluded from the estimation is presented in the heading of each column.
The findings are robust to these changes in the country coverage, which affect neither the sign of the
coefficients nor their significance.
30
T a
bl
e
8:
Su
bs
am
pl
e
of
Fr
en
ch
fir
m
s
ex
po
rt
in
g
to
L
D
C
A
si
an
co
un
tr
ie
s
D
ep
en
de
nt
va
ri
ab
le
L
og
N
◦
ex
po
rt
ed
pr
od
uc
ts
L
og
ex
po
rt
sa
le
s
(1
)
(2
)
(3
)
(4
)
(5
)
(6
)
Fu
ll
sa
m
pl
e
M
N
F
N
on
-M
N
F
Fu
ll
sa
m
pl
e
M
N
F
N
on
-M
N
F
Ta
ri
ff
f
j,
t−
1
-0
.2
16
-0
.3
40
-0
.0
48
-0
.2
28
-0
.6
94
**
0.
15
5
(0
.1
34
)
(0
.2
39
)
(0
.1
63
)
(0
.1
91
)
(0
.3
21
)
(0
.2
36
)
Ta
ri
ff
f
j,
t−
1
×
C
hi
na
j
-0
.7
82
**
*
-1
.3
72
**
-0
.7
62
**
*
-1
.7
67
**
*
-2
.6
07
**
*
-1
.7
61
**
*
(0
.2
62
)
(0
.5
43
)
(0
.2
93
)
(0
.3
04
)
(0
.5
69
)
(0
.3
57
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
co
un
tr
ie
s)
0.
45
9*
**
0.
36
4*
**
0.
55
0*
**
0.
94
3*
**
1.
07
0*
**
0.
85
1*
**
(0
.0
92
)
(0
.1
30
)
(0
.1
27
)
(0
.1
23
)
(0
.1
85
)
(0
.1
60
)
E
xt
en
si
ve
m
ar
gi
n
co
m
pe
tit
io
n f
jt
(N
◦
fir
m
s)
0.
94
5*
**
0.
92
0*
**
0.
92
7*
**
1.
41
5*
**
1.
59
2*
**
1.
23
2*
**
(0
.0
67
)
(0
.0
98
)
(0
.0
93
)
(0
.0
88
)
(0
.1
38
)
(0
.1
13
)
In
te
ns
iv
e
m
ar
gi
n
co
m
pe
tit
io
n f
jt
-0
.0
65
**
*
-0
.0
72
**
*
-0
.0
59
**
*
-0
.0
18
*
-0
.0
16
-0
.0
17
(0
.0
08
)
(0
.0
14
)
(0
.0
10
)
(0
.0
10
)
(0
.0
18
)
(0
.0
12
)
Fi
rm
fix
ed
ef
fe
ct
s
N
o
N
o
Y
es
Y
es
Y
es
Y
es
C
ou
nt
ry
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
Y
ea
rfi
xe
d
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
es
O
bs
er
va
tio
ns
13
,2
24
4,
39
4
8,
83
0
13
,2
24
4,
39
4
8,
83
0
R
2
0.
59
0
0.
56
8
0.
58
7
0.
62
8
0.
56
6
0.
62
2
N
ot
es
: T
he
re
gr
es
si
on
s
ar
e
O
L
S
es
tim
at
io
ns
of
eq
ua
tio
n
(3
)f
or
th
e
pe
ri
od
19
99
-2
00
5
fo
rt
he
su
bs
am
pl
e
of
le
as
td
ev
el
op
ed
A
si
an
co
un
tr
ie
s:
C
hi
na
,I
nd
ia
,I
nd
on
es
ia
,P
ak
is
ta
n,
Ph
ili
pp
in
es
an
d
T
ha
ila
nd
.T
he
de
pe
nd
en
tv
ar
ia
bl
e
is
th
e
lo
ga
ri
th
m
of
th
e
nu
m
be
r
of
ex
po
rt
ed
pr
od
uc
ts
to
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t.
Fi
xe
d
ef
fe
ct
s
by
fir
m
,c
ou
nt
ry
an
d
ye
ar
an
d
a
co
ns
ta
nt
ar
e
in
cl
ud
ed
in
al
ls
pe
ci
fic
at
io
ns
.
C
ou
nt
ry
le
ve
lc
on
tr
ol
va
ri
ab
le
s
de
fin
iti
on
s
ar
e
re
po
rt
ed
in
ta
bl
e
4.
∗∗
∗,
∗∗
,
an
d
∗i
nd
ic
at
e
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.
31
Ta
bl
e
9:
Se
ns
iti
vi
ty
te
st
to
th
e
se
le
ct
ed
gr
ou
p
of
L
D
C
A
si
an
co
un
tr
ie
s
D
ep
en
de
nt
va
ri
ab
le
L
og
nu
m
be
ro
fe
xp
or
te
d
pr
od
uc
ts
by
fir
m
f
to
co
un
tr
y
j
in
ye
ar
t
(1
)
(2
)
(3
)
(4
)
(5
)
In
di
a
In
do
ne
si
a
Pa
ki
st
an
Ph
ili
pp
in
es
T
ha
ila
nd
T a
ri
ff
f
j,
t−
1
-0
.2
30
-0
.0
74
-0
.0
86
-0
.0
44
-0
.6
98
**
*
(0
.1
45
)
(0
.1
67
)
(0
.1
40
)
(0
.1
50
)
(0
.1
77
)
Ta
ri
ff
f
j,
t−
1
×
C
hi
na
j
-0
.7
66
**
*
-1
.3
34
**
*
-0
.9
18
**
*
-0
.5
03
**
-0
.5
79
**
(0
.2
70
)
(0
.2
94
)
(0
.2
65
)
(0
.2
55
)
(0
.2
85
)
R
2
0.
61
1
0.
62
1
0.
59
6
0.
60
5
0.
58
9
D
ep
en
de
nt
va
ri
ab
le
L
og
ex
po
rt
sa
le
s
by
fir
m
f
to
co
un
tr
y
j
in
ye
ar
t
Ta
ri
ff
f
j,
t−
1
-0
.3
18
-0
.2
82
-0
.1
14
-0
.0
62
-0
.1
53
(0
.2
02
)
(0
.2
30
)
(0
.1
98
)
(0
.2
11
)
(0
.2
56
)
Ta
ri
ff
f
j,
t−
1
×
C
hi
na
j
-1
.8
55
**
*
-2
.2
64
**
*
-1
.8
51
**
*
-1
.6
72
**
*
-1
.3
62
**
*
(0
.3
14
)
(0
.3
30
)
(0
.3
08
)
(0
.3
23
)
(0
.3
57
)
R
2
0.
65
2
0.
67
0
0.
63
4
0.
64
6
0.
63
6
Fo
re
ig
n
co
m
pe
tit
io
n
m
ea
su
re
s
Y
es
Y
es
Y
es
Y
es
Y
es
C
ou
nt
ry
le
ve
lc
on
tr
ol
s
Y
es
Y
es
Y
es
Y
es
Y
es
Fi
rm
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
C
ou
nt
ry
fix
ed
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
Y
ea
rfi
xe
d
ef
fe
ct
s
Y
es
Y
es
Y
es
Y
es
Y
es
O
bs
er
va
tio
ns
11
,6
30
9,
88
0
12
,7
30
11
,8
71
11
,7
40
N
ot
es
:
T
he
re
gr
es
si
on
s
ar
e
O
L
S
es
tim
at
io
ns
of
eq
ua
tio
n
(3
)f
or
th
e
pe
ri
od
19
99
-2
00
5
fo
rt
he
su
bs
am
pl
e
of
le
as
td
ev
el
op
ed
A
si
an
co
un
tr
ie
s:
C
hi
na
,I
nd
ia
,I
nd
on
es
ia
,P
ak
is
ta
n,
Ph
ili
pp
in
es
an
d
T
ha
ila
nd
.
T
he
na
m
e
of
th
e
ex
cl
ud
ed
co
un
tr
y
is
pr
es
en
te
d
in
th
e
he
ad
in
g
of
ea
ch
co
lu
m
n.
T
he
de
pe
nd
en
t
va
ri
ab
le
is
th
e
lo
ga
ri
th
m
of
th
e
nu
m
be
r
of
ex
po
rt
ed
pr
od
uc
ts
(e
xp
or
ts
al
es
)
to
co
un
tr
y
j
by
fir
m
f
in
ye
ar
t.
Fi
xe
d
ef
fe
ct
s
by
fir
m
,c
ou
nt
ry
an
d
ye
ar
an
d
a
co
ns
ta
nt
ar
e
in
cl
ud
ed
in
al
ls
pe
ci
fic
at
io
ns
.
C
ou
nt
ry
le
ve
lc
on
tr
ol
va
ri
ab
le
s
de
fin
iti
on
s
ar
e
re
po
rt
ed
in
ta
bl
e
4.
∗
∗
∗,
∗∗
,
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.
32
VI. CONCLUDING REMARKS
This paper contributes to the literature on the microeconomic effects of trade reform by disentangling
and identifying two channels through which a unilateral trade liberalization episode affects firms’ export
performance: the expansion of market access and the intensification of foreign competitive pressures.
This paper quantifies the different effect of Chinese versus Asian tariff cuts on French exporters.
Our findings can be summarized as follows. First, we find a positive effect of Chinese unilateral
liberalization on both the extensive and intensive margins of French exporting firms. Although this effect
is reduced when controlling for specific foreign competitive pressures at the firm level in the destination
market, there is still a net positive effect of Chinese tariff cuts on French firms exports relative to other
Asian countries. Indeed, the number of exported products and export sales by French firms towards
China increased by a larger amount when compared to other Asian destinations. Second, our findings
suggest that the effect of Chinese tariff reductions is more important for firms exporting intermediate
goods. Finally, in line with the previous finding, we show that multinational firms play a predominant
role in explaining the positive effect of Chinese liberalization on the expansion of French firms’ product
scope.
33
Notes
1 Baldwin (2011) proposes a political economy study which disentangles the theoretical mechanisms through which a
unilateral liberalization affects developing countries.
2 Berthou and Fontagné (2009) also explore how firms adjust their product mix and exported value as a consequence of a
reduction of trade costs.
3 Our sample includes: China, India, Indonesia, Korea, Japan, Pakistan, Philippines, Singapore and Thailand.
4 Several robustness tests demonstrate that our results are not driven by the countries included in the comparison group.
5 Multi-product firms’ models include Allanson and Montagna (2005), Baldwin and Gu (2009), Feenstra and Ma (2008),
Eckel and Neary (2009), Nocke and Yeaple (2008), Bernard et al. (2009), Mayer et al. (2009), Arkolakis and Mundler (2008)
and Dhingra (2009).
6 Her findings point out that Thai tariffs cut has a negative effect on process and product innovation among exporters,
while it has a positive effect on product innovation of less export-oriented firms.
7 India, Indonesia, Japan, Korea, Philippines, Pakistan, Thailand and Singapore.
8 For industrial goods the average bound tariff level will go down to 8.9 percent with a range from 0 to 47 percent.
9 There is a lot of heterogeneity across other Asian destinations. For example, the average MFN tariff applied by Korea,
Japan and Singapore is not changing over time, while Indonesia’s and Philippines’s average tariff falls by 3 p.p. and Pakistan
and Thailand by around 1 p.p. and India’s MFN tariff falls more than 10 p.p.
10Other Asian destinations includes: India, Indonesia, Korea, Japan, Philippines, Singapore, Pakistan and Thailand.
11This figure is based on BACI dataset and French customs dataset (1999-2005). To make the figure clearer the outliers
observations are excluded. Similar figures for the alternative competition measures are available upon request.
12 Export information is collected in the following way: exports outside EU are reported if firms’ annual trade value
exceeds 1,000 Euros or a weight of a ton.
13 The source of MFN applied tariffs is TRAINS: http://unctad-trains.org.
14The BACI dataset is provided by the CEPII and constructed based on COMTRADE dataset from the UN. This dataset pro-
vides bilateral trade flows at the 6-digit product level (Gaulier and Zignago, 2010). From BACI dataset we take information on
import flows in each of our destination country. BACI is downloadable from http://www.cepii.fr/anglaisgraph/bdd/baci.htm.
15We thank two anonymous referees for suggesting these two alternative measures of foreign competition (ii) and (iii).
16The assumption behind this measure of extensive margin competition is that equal HS6 varieties imported from different
countries are perfect substitutes. This idea has been recently discussed by the trade literature on quality (e.g. Khandelwal,
34
2010).
17We thank an anonymous referee for suggesting this way of computing this measure.
18Ideally, we need a measure that captures the competitive pressures faced by French firms in each Asian market by other
local and foreign firms. To compute such measure we will need firm-product level information on the HS6 products sold
by local and foreign producers in each domestic market. To the best of our knowledge this disaggregated information at the
firm-HS6 product level is not available for China and the other Asian countries in our sample.
19 To further address the potential endogeneity issue between import tariff and export patterns, we use lagged tariff mea-
sures.
20Section III describes in detail how these measures are constructed.
21 Serious missing information problems prevented us from considering a more disaggregated product level dimension.
22To identify multinational firms, we combine our main dataset with the Enquete Echanges Internationaux Intra-Groupe
produced by the French Office of Industrial Studies and Statistics (SESSI). This latter dataset is based on a firm-level survey
of manufacturing firms belonging to groups with at least one affiliate in a foreign country and with international transactions
totaling at least one million euros for the year 1999.
23 To add information on firms’ characteristics, we match our main customs dataset with the Annual French Business Sur-
veys (EAE), available from INSEE. This survey allows us to have information on firms’ employment and labor productivity
(value added per worker). Since this implies restricting the sample to exporters with more than 20 employees which have
manufacturing as their main activity, the number of observations is reduced by a half. We have no firm-level information
for the Food and Beverages industry (corresponding to ISIC 15). This restricted sample covers around 14,000 observations,
while the main sample has almost 28,000 observations.
24Since the basket of products is kept constant over the period, the number of observations is reduced to almost 24,394.
35
References
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