Is Processing Good?: Theory and Evidence from China

Authors: Loren Brandt, Bingjing Li and Peter Morrow

This paper studies the welfare effects of policies encouraging processing exports, using Chinese data for 109 industries for 2000-2007. Counterfactual policy experiments imply large welfare losses (3-7%) to Chinese agents from not being allowed to buy processing output on the domestic market. There are smaller welfare effects (< 1%)="" from="" the="" duty="" free="" status="" of="" processing="" />