DP14486 Made and Created in China: The Role of Processing Trade
This paper proposes that processing trade, which played an important role in China’s export miracle, not only leads goods to be “Made in China,” but also “Created in China.” Using unique transaction-level trade data on firms’ branding information, we document four main findings. First, a significant share of exporters engage in both ordinary and processing export activities, and they exhibit superior performance in various margins. Second, even within firms, there is a tight link between firms’ export mode choice and brand ownership—own branded products are typically exported under ordinary trade regime while products under other firms’ brands are exported under processing trade regime. Third, there is a price premium associated with own-branded products. Fourth, Chinese firms intensify their branding activities when faced with favorable processing trade policies upstream. To rationalize these findings, we present a simple theoretical framework where firms with multi-attributes endogenously determine their specialization within the production network.
