China's Pure Exporter Subsidies

Fabrice Defever and Alejandro Riaño

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: One third of Chinese exporters sell more than ninety percent of their production abroad. We argue that this distinctive pattern is attributable to a wide range of subsidies that provide incentives to these "pure exporters". We propose a heterogeneous firm model in which firms exporting all their output receive an ad-valorem sales subsidy. Using microdata on manufacturing firms matched with custom transactions for the years 2000-2006, we measure sizable differences in productivity and paid taxes between pure exporters and domestic firms and between pure and regular exporters, in line with the predictions of our model. Embedding a pure-exporter subsidy in a two-country general equilibrium environment, we show that this instrument is worse from a welfare standpoint than a standard export subsidy, partly because it increases protection of the domestic market. A counterfactual analysis suggests that eliminating these subsidies would result in a welfare gain for China comparable to halving its trade costs.

Keywords: Trade policy; export subsidies; heterogeneous firms; China (search for similar items in EconPapers)
JEL-codes: F12 F13 O47 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-int and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: China's Pure Exporter Subsidies (2012)
Working Paper: China's pure exporter subsidies (2012)
Working Paper: China's Pure Exporter Subsidies (2012)
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