“Export self-selection effect” of manufacturing enterprises in China: an empirical analysis based on new trade theory

CAO Chi1

(1.School of Business Administration, Zhongnan University of Economics and Law)

【Abstract】On the basis of knowing the relationship between Chinese enterprise productivity and export, this paper combines the new world trade theory with the characteristics of the Chinese market and modifies assumption of the Melitz model on the domestic and foreign market entry costs to expand the model. In the empirical test, by using Chinese manufacturing enterprise panel data from 2000 to 2006, this paper finds that the “export self-selection effect” of Chinese manufacturing enterprises is negative on the whole, showing evidence of “productivity paradox.” In terms of different industrial divisions, the “export self-selection effect” is different in China's manufacturing enterprises, but there is a negative tendency in general. The paper holds that two main reasons may account for the result. One is that different trade types lead to the difference in trade patterns; the other is that the market entry threshold of the Chinese industry is relatively high, even if the factor of difference in trade types is excluded. To conclude, this paper analyzes the main reasons for the high threshold of the Chinese market in detail, in order to provide some opinions and suggestions for Chinese manufacturing enterprises to participate in the domestic competition and international trade.

【Keywords】 productivity paradox; export self-selection effect; trade cost; processing trade;


Download this article

(Translated by HAN Xueting)


    [1]. ① Trade nature includes processing trade, mixed trade, general trade, and others. [^Back]

    [2]. ② Trade patterns include export, and domestic sales. [^Back]

    [3]. ③ “Export self-selection effect” means that compared to the productivity of non-export enterprises, export enterprises have a significant export premium, and the enterprises with higher productivity will actively choose to enter the export market. [^Back]

    [4]. ④ There is a phenomenon in Chinese industries that the productivity means of export enterprises are generally lower than those of enterprises which only supply the domestic market, and the result of this reality and theoretical violation is called “productivity paradox.” [^Back]

    [5]. ⑤ FE condition: free enter condition, free market access condition of the manufacturers. [^Back]

    [6]. ⑥ ZCP condition: zero cutoff profit condition, zero profit production condition after the manufacturers enter the market. [^Back]

    [7]. ⑦ Among them φd* stands for the zero point of domestic production, and φx* stands for the zero point of export markets. [^Back]

    [8]. ⑧ Here the “zero point” can be defined as the boundary point of the manufacturers to enter the market with zero expected profits. [^Back]

    [9]. fd stands for domestic fixed cost, fx stands for export fixed cost. [^Back]

    [10]. ⑩ We assume that the probability that an enterprise can successfully enter the Chinese market is pdt = 1 − G(φ*dt) / 1 − G(φ*xt). [^Back]

    [11]. 11 According to the China industry two-digit code division, the division criterion is GB/T 4754–2002,and the manufacturing industry categories include 13–43 (without 38). [^Back]

    [12]. 12 Codes of the two industries which are removed because of the monopoly are: 16, 25. [^Back]

    [13]. 13 Codes of the 13 industries which are removed because of the resources dependence are: 20, 21, 22, 23, 24, 26, 28, 29, 30, 31, 32, 33, 43. [^Back]

    [14]. 14 Codes of the 15 industries after the industry screening are: 13, 14, 15, 17, 18, 19, 27, 34, 35, 36, 37, 39, 40, 41, 42. [^Back]

    [15]. 15 Xie Qianli screening rules: first, if the gross industrial output value, main business income, gross fixed asset value and industrial added value of the sample are equal to or less than 0, it means that the sample data have obvious statistical error, and should be deleted; second, the sample data in abnormal operating conditions should be deleted. Third, the sample data that the annual average number of all employees is less than eight should be deleted. [^Back]

    [16]. 16 Other trade contains the samples of trade nature as “inbound and outbound goods in bonded warehouses,” “transit goods in bonded warehouses,” “small-scale border trade,” “imported equipment for export processing zone,” “export goods for foreign contracted projects," “consignment, consignment trade,” “processing and assembling imported equipment,” “others,” “other overseas donated materials,” “imported equipment and goods of foreign invested enterprises as investment,” and “leasing trade.” [^Back]

    [17]. 17 There are two ways to calculate productivity. One is the parametric method, and the commonly used method is the “Solow residual method.” The other is the non-parametric method, and the commonly used method is envelope analysis method. [^Back]

    [18]. 18 Trade nature invariant: no matter what situation that the enterprises use processing trade, mixed trade, general trade, or other trade. [^Back]


    Dai, M., Yu, M. & Madhura Maitra. China Economic Quarterly (经济学(季刊)), (2)(2014).

    Li, C. & Yin, X. Finance & Trade Economics (财贸经济), (11) (2009).

    Li, J. & Zhang, N. Journal of International Trade (国际贸易问题), (6)(2014).

    Qian, X., Wang, J., Huang, Y., et al. The Journal of Quantitative & Technical Economics (数量经济技术经济研究), (2)(2011).

    Xie, Q., Luo, S. & Zhang, Y. China Economic Quarterly (经济学(季刊)), (3) (2008).

    Yi, J. & Fu, J. The Journal of World Economy (世界经济), (5) (2011).

    Zhang, J., Li, Y. & Liu, Z. Management World (管理世界), (12) (2009).

    Baldwin, R. E., (2005)“Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model,” NBER Working Paper, NO11471.

    Bernard, A. B., Jensen, J. B., (2004)“Why Some Firms Export,”The Review Of Economics and Statistics, 86(2): 561-569..

    Dai, M.; Maitra, M. and Yu, M., (2011)“Unexceptional Exporter Performance in China? The Role of Processing Trade,” Peking University CCER Working Paper, 11.

    Eaton, J., Kortum, S., Kramarz, F., (2004)“Dissecting Trade: Firms, Industries,and Export Destinations,” The American Economic Review, 94(2): 150-154.

    Helpman, E., Melitz, M. J., Yeaple, S. R., (2004)“Export versus FDI with Heterogeneous Firms,” The American Economic Review,94(1): 300-316.

    Melitz, M. J., (2003) “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica, 71(6): 1695-1725.

    Lu, D., (2010) “Exceptional Exporter Performance? Evidence from Chinese Manufacturing Firms,” University of Chicago Job Market Paper, 11.

    Lu, J.; Lu,Y. and Tao, Z., (2010) “Exporting Behavior of Foreign Affiliates: Theory and Evidence,” Journal of International Economics, 81(2): 197-205.

This Article


CN: 11-1692/F

Vol , No. 12, Pages 108-121

December 2015


Article Outline


  • 1 Introduction
  • 2 Establishment of the basic framework of the model
  • 3 Data description
  • 4 An empirical explanation of the “labor productivity paradox” in Chinese enterprises
  • 5 Analysis of the reasons why the entry cost of Chinese market is higher than that of foreign markets
  • 6 Conclusion and policy suggestions
  • Footnote