nep-cna New Economics Papers
on China
Issue of 2011‒10‒22
two papers chosen by
Zheng Fang
Ohio State University

  1. Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters By Amit K. Khandelwal; Peter K. Schott; Shang-Jin Wei
  2. The Value-Added Tax Reform Puzzle By Jing Cai; Ann Harrison

  1. By: Amit K. Khandelwal; Peter K. Schott; Shang-Jin Wei
    Abstract: If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. We examine Chinese textile and clothing exports before and after the elimination of externally imposed export quotas. We find that the surge in export value and decline in export prices following quota removal is driven by net entry, and show that this dominance is inconsistent with use of a productivity-based allocation of quota licenses by the Chinese government. Our counterfactual implies that elimination of misallocated quotas raised the overall productivity gain of quota removal by 28 percent.
    JEL: F1 O1
    Date: 2011–10
  2. By: Jing Cai; Ann Harrison
    Abstract: We explore the impact of a tax reform in some provinces of China which eliminated the value-added tax on some investment goods. While the goal of the experiment was to encourage upgrading of technology, our results suggest that there was no evident increase overall in fixed investment, and employment fell significantly in the treated provinces and sectors. The reform reduced the total number of employees for all types of firms. For domestic firms, it reduced employment by almost 8%. Our results are robust to a variety of approaches, and suggest that the primary impact of the policy has been to induce labor-saving growth. This experiment has since been extended to the rest of China.
    JEL: F21 F23 H25
    Date: 2011–10

This nep-cna issue is ©2011 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.