Discussion Papers

Intensive and Extensive Margins of South-South-North Trade: Firm-Level Evidence

By Lili Yan Ing and Miaojie Yu

ERIA Discussion Paper 2015-70

Posted: September 2015

Abstract

The main value added of our paper is twofold. First, we construct a theoretical framework on how South-South trade will affect productivity cut-offs. Second, we present empirical exercises using highly disaggregated data. Our model is based on the South-South-North trade framework. Using a vertical integration among Southern countries (Indonesia and China) and testing it by employing merged Chinese firms and customs trade data, we find that three types of tariff reductions--foreign tariff reductions, home output tariff reductions, and home input tariff reductions--significantly increase home country firm productivity and exports via extensive and intensive margins. Our findings are robust using ex-ante and ex-post productivity.

ERIA-DP-2015-70

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