Destination institutions, firm heterogeneity and exporter dynamics: empirical evidence from China

Abstract

In this paper we study the effects of destination institutions and firm productivity on exporter dynamics in a heterogeneous firm setting. The empirical results, using a panel of Chinese firms, show that the quality of destination institutions has a significant and positive effect on the probability of entry and survival and that these effects are increasing in firm productivity. In contrast, firms have higher initial sales and faster growth in destinations with weaker institutions and this effect is decreasing in firm productivity. We also find that exporter performances are increasing in firm experience and in the level of foreign ownership whereas the importance of destination institutions is decreasing in firm experience and in the level of foreign ownership. We show that while firms from regions with better institutions enjoy higher probability of entry, initial sales, survival and growth in markets with better institutions; the importance of productivity for exporter performance diminishes as the quality of local institutions improves. Lastly, firms that are more dependent on contract enforcement perform better in entry probability, initial sales, survival and growth in destinations with better institutions.