TDPE presents: Daniel Xu

TDPE presents: Daniel Xu (Duke University)

A Structural Model of Demand, Cost, and Export Market Selection for Chinese Footwear Producers

Authors: Mark Roberts, Daniel Xu, Xiaoyan Fan and Shengxing Zhang

Abstract: In this paper the authors use micro data on both trade and production for a sample of large Chinese manufacturing firms in the footwear industry from 2002-2006 to estimate an empirical model of export demand, pricing, and market participation by destination market. They use the model to construct indexes of firm-level demand, cost, and export market profitability. The empirical results indicate substantial firm heterogeneity in both the demand and cost dimensions with demand being more dispersed. The firm-specific demand and cost components are very useful in explaining differences in the extensive margin of trade, the length of time a firm exports to a destination, and the number and mix of destinations, as well as the export prices, while cost is more important in explaining the quantity of firm exports on the intensive margin. The authors use the estimates to analyze the reallocation resulting from removal of the quota on Chinese footwear exports to the EU and find that it led to a rapid restructuring of export supply sources in favor of firms with high demand and low cost indexes.

Sponsored by Trade Development and Political Economy at the Moynihan Institute of Global Affairs