ABSTRACT
This chapter investigates the effect of trade liberalization on Chinese firms’ productivity. The effect of China’s trade liberalization on its productivity was estimated by precisely measuring total factor productivity (TFP), by choosing an appropriate indicator of trade liberalization, and by using the most disaggregated firm-level data. The chapter reviews China’s trade liberalization, introduces the estimation methodology and discusses estimation results and robustness checks. The G. S. Olley and Pakes methodology makes a significant contribution in addressing two empirical challenges. The estimation results suggest that trade liberalization significantly increases productivity for firms that produce complex goods. The chapter examines the growing literature on the nexus between trade liberalization and productivity. To measure productivity, papers such as D. Trefler emphasized labor productivity, although most studies have concentrated on TFP. The productivity of exporting firms is expected to increase less than those of non-exporting firms.
