The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide VAT Rebate Reform in China
Year: 2019
Type: report
Abstract: It is well known that various forms of non-tariff trade barriers exist within a country.Empirically, it is difficult to measure these barriers as they can take many forms.We take advantage of a nationwide VAT rebate policy reform in China as a natural experiment to identify the existence of these intranational barriers due to local protectionism and study the impact on exports and exporting firms.As a result of shifting tax rebate burden, the reform leads to a greater incentive of the provincial governments to block the domestic flow of non-local goods to local export intermediaries.We develop an open-economy heterogenous firm model that incorporates multiple domestic regions and multiple exporting technologies, including the intermediary sector.Consistent with the model's predictions, we find that rising local protectionism leads to a reduction in interprovincial trade, more "inward-looking" sourcing behavior of local intermediaries, and a reduction in manufacturing exports.Analysis using micro firm-level data further shows that private companies with greater baseline reliance on export intermediaries are more adversely affected.
DOI: 10.3386/w26581
Authors: Jie Bai, Jiahua Liu
Institutions: National Bureau of Economic Research, Harvard University
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2994906233