Job Market Paper

• Unexceptional Exporter Performance in China? The Role of Processing Trade (with Mi Dai and Miaojie Yu)

  
  Abstract: The firm level trade literature finds exporters are exceptional performers for a wide range of countries and measures. Paradoxically, the one documented exception is the world’s largest trader, China. We show that this puzzling finding is entirely driven by the presence of firms that engage in export processing – the activity of assembling tariff exempted imported inputs into final goods for resale in foreign markets. In China roughly a fifth of exporters, accounting for about one-third of total export value, are engaged in processing trade only. These firms are 4% to 36% less productive than non-exporters. Removing processing exporters restores the traditional finding that exporters have superior performance relative to non-exporters. Our results show that distinguishing between processing and ordinary exporters is crucial for understanding firm-level exporting behavior in China. It should also be investigated closely in other countries for which processing trade is important.

Working Papers

• Import, Offshoring and Wages: Rent Sharing or Composition? (with Henrik Bursland Fosse) Available upon Request Abstract

  Offshoring firms are found to pay higher average wages than purely domestic firms. Offshoring refers to the act of relocating jobs from the home country to the foreign country. We provide a unifying empirical approach by capturing the different channels through which offshoring might explain this wage difference, namely: (i) skill composition effect (ii) rent sharing effect, and explain how much each contributes towards higher average wages in offshoring firms. Skill composition effect increases average wages when firms offshore low skilled jobs. Rent sharing pushes up wages if firms share offshoring induced increase in profits/revenue with workers through wage bargaining. Unlike previous studies in the offshoring literature we consider both effects jointly and disentangle the impact of each on firm level average wage. We use rich Danish employer-employee data to disentangle the two effects. Using China’s accession to the WTO in December 2001 and the soon after boom in Chinese exports as positive exogenous shocks to the incentive of offshoring to China, we estimate the causal effect of offshoring on average wages through the two channels. We find that both effects explain the gain in average wages between 2002-2005, for firms offshoring to China in 2002. Furthermore, distinguishing among firms depending on when they offshore to China provide interesting results when comparing the increase in wages in 2002-2005 with an earlier period, 1999-2001. We find that the differential rise in average wage was highest for firms offshoring to China in 2002 but not in 1999, and is explained by rent sharing only. For firms offshoring to China in both 1999 and 2002 the differential wage increase is explained more by skill composition effect. Moreover, these patterns are not discernable using measures of skill composition and rent sharing available in typical firm level datasets – like ratio of educated to uneducated workers and sales per employee.  Close

• Impact of Trade Costs on Boundary of Multinational Firms Available upon Request Abstract

  This paper empirically examines the impact of trading costs on offshoring in the presence of incomplete contracts. The predictions tested in this paper are based on theoretical models of Antras and Helpman (2004, 2008), Grossman and Helpman (2003). Both these classes of models predict that a decline in trade costs increases arms-length relative to intra-firm trade. However, using US Census data on share of intra-firm imports across 457 industries, 230 countries over 8 years, and using tariff and freight as proxies for trade costs, we find that lower trade costs fail to decrease the share of imports that are intra-firm, as required by theory. The results are robust to inclusion of other known determinants of intra-firm trade, such as capital and skill intensity, relationship specificity, capital and skill abundance, country’s contract enforcement and various interaction terms. Though these controls bear out the other predictions of these types of models, trade cost measures fail to do so. For most of the specifications the point estimates of the trade cost variables were negative and significant and in some cases tariff turned out to be insignificant. To sum up, the data does not bear out the theoretical predictions pertaining to the effect of trade costs on share of US imports that are intra-firm.  Close