Globalization, ownership, and the effects of trade liberalization on Chinese import prices

Abstract

This paper studies the differential effects of trade liberalization following China’s accession to the World Trade Organization. While China’s tariff liberalization was uniformly implemented as a matter of national policy, our results show that the pass-through of tariff reductions to import prices was more pronounced for products that were imported by purchasers in China’s provinces that were more exposed to globalization. In addition, we find that the strength of tariff pass-through was also affected by firm ownership: tariff pass-through was lower for products imported by Chinese state-owned enterprises than it was for products imported by foreign-owned enterprises (FOEs). Finally, we show that tariff pass-through increased as provinces became more exposed to globalization – an effect that was more pronounced for imports purchased by private Chinese firms than it was for the imports purchased by FOEs.