DP9246 Trade liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters

Author(s): Amit Khandelwal, Peter K. Schott, Shang-Jin Wei
Publication Date: December 2012
Keyword(s): China, misallocation, Multifibre Agreement, productivity
JEL(s): F1, O1
Programme Areas: International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9246

If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. We examine Chinese textile and clothing exports before and after the removal of externally imposed quotas. Both the surge in export volumes and the decline in prices after the quota removal are driven by net entry, implying that the pre-liberalization quota allocation is not based on firm productivity. Removing this misallocation accounts for a substantial share of the overall productivity gains associated with the quota removal.