The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide VAT Rebate Reform in China / Jie Bai, Jiahua Liu.

Format:

Book

Author/Creator:

Bai, Jie.

Contributor:

National Bureau of Economic Research.

Liu, Jiahua.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26581.

NBER working paper series no. w26581

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Impact of Intranational Trade Barriers on Exports

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

It is well known that various forms of non-tariff trade barriers exist within a country. Empirically, it is difficult to measure these barriers as they can take many forms. We take advantage of a nationwide VAT rebate policy reform in China as a natural experiment to identify the existence of these intranational barriers due to local protectionism and study the impact on exports and exporting firms. As a result of shifting tax rebate burden, the reform leads to a greater incentive of the provincial governments to block the domestic flow of non-local goods to local export intermediaries. We develop an open-economy heterogenous firm model that incorporates multiple domestic regions and multiple exporting technologies, including the intermediary sector. Consistent with the model's predictions, we find that rising local protectionism leads to a reduction in interprovincial trade, more "inward-looking" sourcing behavior of local intermediaries, and a reduction in manufacturing exports. Analysis using micro firm-level data further shows that private companies with greater baseline reliance on export intermediaries are more adversely affected.

Notes:

Print version record

December 2019.