Digital trade liberalization and quality upgrading: evidence from Chinese intermediate imports

Abstract

ABSTRACT This article investigates how the import quality of intermediate products responds to digital trade liberalization using Chinese Customs data and the composite index of digital trade liberalization obtained from OECD database for 2014–2019. The results reveal that digital trade liberalization has significantly improved the quality of Chinese manufacturing intermediate imports. Further mechanism tests show that digital trade liberalization will boost the improvements through trade cost reduction effects. For the influence path, digital trade liberalization will promote the quality upgrading through both intensive and extensive margins. The heterogeneity analyses find that imports from countries with high economic developments experienced larger quality promotion than those from lower economic area. Meanwhile, the quality upgrading effects of digital trade liberalization are mainly reflected in Chinese non-comparative industries, such as downstream, digital-intensive, R&D-intensive and technology-intensive industries. Moreover, compared to homogeneous products and those by processing trade mode, the quality of intermediate imports for differentiated products by general trade are more responsive to the liberalization of digital trade barriers.