Do exporters have markup premiums and why (not)? Evidence from China

Abstract

Clarifying the export-markup nexus is particularly noteworthy and topical for export-oriented developing countries. Although intensive and extensive margins of exports help increase trade volume, the earned profit margin is small and decreases if firms export low-quality products or focus on processing exports. The markup represents a firm's market power: it also captures the evolution of price and costs affected by exporting. The estimation of markups facilitates the evaluation of the effects of various trade policies on market power.After China's accession to the World Trade Organization (WTO) in December 2001 and full integration into the global trading system, China exploited the East Asian production networks to become the 'World's Factory' and be the major exporter of information and communication technology products. Thus, an emerging topic warranting an empirical investigation is whether exporters also experience higher markups than their non-exporting counterparts in China, as predicted in theoretical models, for example Melitz and Ottaviano (2008) and Antoniades (2015).However, China's export activity demonstrates some specific features that may alter the exportmarkup nexus in the theoretical models, mainly ownership structure and trade content. International production fragmentation is an emerging and prevailing production pattern in the world economy. Cross-border production chains tend to include geographically proximate countries with trade integration (Johnson & Noguera, 2012). Through the appropriation of the advantages of favourable policies and cheap labour, China has attracted a large volume of export-platform foreign direct investment (FDI) from developed economies, especially its East Asian neighbours. Furthermore, foreign-invested enterprises (FIEs) play a critical role in China's export sector. For example, in 2005 and 2012, the proportion of total exports contributed by FIEs reached the high values of 58.3% and 49.2%, respectively.

Export duration and firm markups: evidence from China

“…For this reason, some studies further analyzed the micro mechanisms through which exporting affects firms' markups in terms of innovation (Máñez et al 2022) andmarket competition (Garcia-Marin andVoigtländer, 2019;Caselli and Schiavo, 2020). In addition to examining how firms' export behavior affects their markups, other research evaluated how firms' export patterns (Feenstra and Hanson, 2004;Yang, 2021) and choice of export destination countries (Manova and Zhang, 2009;Kilinç, 2019;Yang, 2021) affect markups. Although there is a wealth of research on how exporting affects firms' markups, the majority of these studies concentrated on how export behavior affects the markups of enterprises, and very few examined the influence from the perspectives of export mode and export destination country choice.…”