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

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