Trade liberalization and domestic vertical integration: Evidence from China

• 成果类型: Article
• 署名作者: Liu, Qing; Qiu, Larry D.; Zhan, Chaoqun
• 署名单位: Renmin University of China; Lingnan University; Sun Yat Sen University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2019.103250
• 发表日期: 2019
• 关键词: trade liberalization; vertical integration; Outsourcing

摘要

In this study we examine the effects of trade liberalization on domestic backward vertical integration in which a domestic upstream firm (target) is acquired by a domestic downstream firm. We first build a relationship specific investment model to guide and provide insights to our empirical work. Then we take China's accession to the WTO as a quasi-natural experiment for trade liberalization to test the theoretical predictions. Consistent with the model, we find that a decrease in tariffs on the target industry's outputs reduces vertical integrations, but a decrease in tariffs on the target industry's inputs increases vertical integrations. The findings are robust to various specifications of the empirical model and measurements of the variables. We further show that underinvestment problem is an important mechanism to understanding the effects of tariff reductions on firms' organizational choices. (C) 2019 Elsevier B.V. All rights reserved.