The link between import sources and export success: Evidence from China

Abstract

This paper investigates the role of intermediate input sources in explaining firm-level export patterns. To establish a causal link, I exploit China’s accession to the WTO in late 2001 to construct destination-specific instruments for the import intensities of Chinese manufacturing firms from 2002–2006. I show that firms which import a greater portion of intermediates from a particular country tend to earn a greater portion of product export revenue from said country. This effect is stronger for smaller (less productive) firms than for larger (more productive) ones, for private and foreign firms than for state-owned enterprises, and for products with greater scope for differentiation. The findings suggest that cost complementarities in accessing foreign markets – in addition to quality and technology upgrading – play a significant role in determining firm-level trade flows.