DP13001 Managing Trade: Evidence from China and the US

Author(s): Nicholas Bloom, Kalina Manova, Stephen Teng Sun, John Van Reenen, Zhihong Yu
Publication Date: June 2018
Keyword(s): exports, Management, product quality, productivity
JEL(s): F10, F14, F23, L20, O19, O32
Programme Areas: International Trade and Regional Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13001

We present a heterogeneous-firm model in which management ability increases both production efficiency and product quality. Combining six micro-datasets on management practices, production and trade in Chinese and American firms, we find broad support for the model's predictions. First, better managed firms are more likely to export, sell more products to more destination countries, and earn higher export revenues and profits. Second, better managed exporters have higher prices, higher quality, and lower quality-adjusted prices. Finally, they also use a wider range of inputs, higher quality and more expensive inputs, and imported inputs from more advanced countries. The structural estimates indicate that management is important for improving production efficiency and product quality in both countries, but it matters more in China than in the US, especially for product quality. Panel analysis for the US and a randomized control trial in India suggest that management exerts causal effects on product quality, production efficiency, and exports. Poor management practices may thus hinder trade and growth, especially in developing countries.