nep-cna New Economics Papers
on China
Issue of 2012‒12‒06
two papers chosen by
Zheng Fang
Ohio State University

  1. Firms and Credit Constraints along the Value-Added Chain: Processing Trade in China By Kalina Manova; Zhihong Yu
  2. Costly Posturing: Relative Status, Ceremonies and Early Child Development in China By Chen, Xi; Zhang, Xiaobo;

  1. By: Kalina Manova; Zhihong Yu
    Abstract: Global supply chains allow firms in developing countries to share in the gains from trade by conducting either ordinary or processing trade. This paper examines how financial constraints affect companies’ choice of trade regime and ultimately profitability. We exploit matched customs and balance sheet data from China, where processing trade is further divided into import-and-assembly (processing firm pays for imported inputs) and pure assembly (processing firm receives imported inputs for free). We establish two main results. First, profits, profitability and value added fall as exporters orient sales from ordinary towards processing trade, and from import-and-assembly towards pure assembly. Second, less financially constrained firms perform more ordinary trade relative to processing trade, and more import-and-assembly relative to pure assembly. We rationalize these patterns with a model that incorporates credit constraints and imperfect contractibility in companies’ choice of trade regime. Our results imply that limited access to capital restricts firms to low value-added stages of the supply chain and precludes them from pursuing more profitable opportunities. Financial frictions thus affect the organization of production across firm and country boundaries, and inform optimal trade policy in the presence of trade in intermediates.
    JEL: F10 F13 F14 F23 F34 G32 O19
    Date: 2012–11
  2. By: Chen, Xi; Zhang, Xiaobo;
    Abstract: Presenting gifts at funerals, weddings, and other ceremonies held by fellow villagers have been regarded as social norms in Chinese villages for thousands of years. However, it is more burdensome for the poor to take part in these social occasions than fo
    Keywords: relative social status, squeeze effects, food consumption, stunting, underweight
    Date: 2012

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