Export adjustment to input trade liberalization: The role of import wholesaling services

Abstract

This paper studies how input trade liberalization affects export performance, by stressing the important role played by import wholesaling services. Using data from China, we find that input tariff cuts imply a decline in aggregate export revenues in mostly direct-importing sectors, through the exit of varieties from the export market (extensive margin), and a decrease in the foreign sales of surviving varieties (intensive margin). These effects are due to within-variety efficiency losses, associated with efficiency gains from market share reallocations across varieties. Opposite results are found in sectors that generally rely on wholesalers when importing intermediate inputs.