This paper evaluates the impact of two export finance support schemes: The Export Finance Scheme (EFS) and the Long-Term Finance Facility for Plant & Machinery (LTFF) on firm-level export performance. These policies offer loans to exporters at concessionary interest rates to finance short-term working capital and long-term investment in machinery and equipment respectively. To do so, we combine customs data with information about which firms participate in each scheme and the value of the loans they obtain between 2015 and 2017. We find that EFS and LTFF increased the growth rate of exports sales by 7 and 8-11 percentage points respectively. Neither policy exerts a significant impact on the number of products that a firm exports or the number of foreign countries it sells to. Our analysis indicates that facilitating long-term investment in physical capital is more cost effective to raise exports than subsidizing exporters’ working capital needs.

We derive closed-form expressions for the distribution of export intensity when firm-destination-specific revenue shifters are distributed gamma, Fréchet and Weibull in a two-country model of trade with isoelastic demand. We estimate the parameters governing the distribution of export intensity for each type of revenue shifter across 72 countries. We compare the model’s fit to the distribution of export intensity across countries when revenue shifters are distributed lognormal, gamma and Fréchet/Weibull. While lognormal slightly outperforms the other distributions, all revenue shifters considered reproduce salient features of export intensity distributions within and between countries quite successfully.

Received wisdom suggests that most exporters sell most of their output domestically. We show, however, that the distribution of export intensity varies substantially across countries and is often bimodal, displaying “twin peaks”—that is, large shares of both low- and high-intensity exporters coexisting alongside each other within a country. We reconcile this new stylized fact with an otherwise standard model of trade in which firms face firm-destination-specific revenue shifters that follow a lognormal distribution with sufficiently high dispersion. We structurally estimate the model and show that differences in countries’ size relative to the rest of the world can account for most of the observed cross-country variation in the distribution of export intensity in our data. While policies that incentivize firms to export a high share of their output account for a substantial share of the variation in the dispersion of firm-destination revenue shifters, they cannot fully account for the widespread prevalence of twin peaks around the world.

Countries differ in the extent to which their financial systems rely on banks or on financial markets. We offer a model featuring a complex relationship between countries’ financial system architecture and their comparative advantage. Countries with capital markets that are relatively more efficient than their banking systems gain comparative advantage in sectors with strong dependence on market finance. Moreover, countries specializing in sectors that depend on market finance develop their capital markets more than their banking systems. To empirically investigate these links, we construct a measure of sector bank dependence and establish a bi-directional relationship between countries’ comparative advantage and their financial systems architecture.

We investigate theoretically and empirically the role of wholesalers in mediating the productivity effects of trade liberalization. Intermediaries provide indirect access to foreign produced inputs. The productivity effects of input tariff cuts on firms that do not directly import therefore depends on the extent that wholesalers are a feature of input supply within an industry. Using firm level data from China, we document that wholesalers play no such role for direct importers. However, other firms experience productivity gains from reducing input tariffs if trade intermediation of foreign inputs within their sector is high. They suffer efficiency losses otherwise.

China has transitioned from being an almost autarkic economy to become the world's largest exporter in less than three decades. Given this unique transformation, this paper investigates if the key stylized facts that characterize the behavior of firms' exports around the world, can also describe China's experience after joining the World Trade Organization. We find that, consistent with received wisdom, relatively few Chinese firms engage in exporting, and those doing so, are on average, larger and more productive than their domestic counterparts. However, unlike other large and developed countries, a substantial share of Chinese exporters sell the majority of their output abroad. In fact, the distribution of Chinese exporters according to their export intensity - the share of their revenues accounted for by exports - is strikingly bimodal. In contrast to recent work that has focused on the technological factors that explain the prevalence of high-intensity exporters, we instead concentrate on the role played by China's heterodox trade policy regime in promoting pure exporters. Our empirical analysis suggests that trade policy has played an instrumental role in fostering a dual export sector. Notably, nine out of ten manufacturing exporters in China are eligible to enjoy fiscal incentives contingent on export performance.

Special economic zones (SEZ), one of the most important instruments of industrial policy used in developing countries, often impose export share requirements (ESR). That is, firms located in SEZ are required to export more than a certain share of their output to enjoy a wide array of incentives—a practice prohibited by the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures. In this paper we exploit the staggered removal of ESR across products and over time in the SEZ of the Dominican Republic—a reform driven by external commitments to comply with WTO disciplines on subsidies—to evaluate how ESR affect export performance at the product and firm levels. Using customs data on international trade transactions from the period 2006 to 2014, we find that making the Dominican SEZ regime WTO‐compliant made SEZ more attractive locations for exporters to be based in. The reform, however, did not have a significant effect on the country's exports or on the share of export value originating from SEZ.

Theoretical and empirical perspectives on the fragmentation of production processes across borders, shedding light on global sourcing decisions and their economic effects. Recent decades have seen a fragmentation of production processes across borders, as firms find it increasingly profitable to organize production on a global scale. This fragmentation occurs across national borders as well as across firm boundaries; companies must decide not only the location of production but also how much control to exert over the different production stages. Economists have responded to this shift by developing new models of global sourcing, generating important insights into the driving forces and economic effects of this new form of globalization. Many questions, however, remain unanswered. This book tries to fill this gap. The contributors ask new questions or offer new modeling approaches to fragmentation of production, focusing in particular on time and uncertainty. They examine global sourcing in firms' multinationalization strategies, including offshoring, product scope, managerial incentives, supplier search, and contractual issues; and explore the interactions of global sourcing, exports, and economic development, investigating such topics as the complementarity of offshoring and exporting, product diversification, and the relationship between vertical linkages and development. Each chapter presents recent research that further develops existing models or documents new empirical patterns related to global sourcing. Contributors Pol Antràs, Sasan Bakhtiari, Sebastian Benz, Giuseppe Berlingieri, Johannes Boehm, Jeronimo Carballo, Huiya …

Received wisdom suggests that most exporters sell the majority of their output domestically. In this paper, however, we show that the distribution of export intensity not only varies substantially across countries, but in a large number of cases is also bimodal, displaying what we refer to as twin peaks. We reconcile this new stylized fact with an otherwise standard, two-country model of trade in which firms are heterogeneous in terms of the demand they face in each market. We show that when firm-destination-specific revenue shifters are distributed lognormal, gamma, or Fréchet with sufficiently high dispersion, the distribution of export intensity has two modes in the boundaries of the support and their height is determined by a country’s size relative to the rest of the world. We estimate the deep parameters characterizing the distribution of export intensity. Our results show that when the conditions for the existence of twin peaks are met, differences in relative market size can explain most of the observed variation in the distribution of export intensity across the world.

This paper studies the impact of a ‘textbook’ ad-valorem export subsidy on firm-level export performance. The Cash Incentive Scheme for Exports (CISE) program offered by the government of Nepal offers a cash subsidy to firms exporting a select group of products to countries other than India. Using customs transactions data combined with subsidy disbursements at the firm level from 2011 to 2014, we estimate the impact of the subsidy on exports of targeted and non-target product-destination combinations and their extensive and intensive margins. We employ a range of doubly-robust matching estimators to control for the non-random selection of exporters into the scheme. We find that subsidized firms increased their exports of targeted product-destinations relative to firms in the control group and that this rise is fully accounted for by the extensive margin: a higher number of targeted products exported and foreign markets served. We do not find any significant changes along the intensive margin nor among non-targeted product-destination combinations. While our results show that the CISE scheme fomented export diversification, its limited impact on total exports and high fiscal cost call into question its effectiveness.

In this paper, we consider a dynamic search-and-matching problem of a firm with its intermediate input supplier. In our model, a headquarter currently matched with a supplier, has an interest to find and collaborate with a more efficient partner. However, supplier switching through search and re-matching is costly. Given this trade-off between the fixed costs and the expected gains from continued search, the process will stop whenever the headquarter has found a sufficiently efficient supplier. Using firm-product-level data of fresh Chinese exporters to the United States, we obtain empirical evidence in line with the predictions of our theory. In particular, we find that the share of short-term collaborations is higher in industries with more supplier-cost dispersion, an indication of higher expected search opportunities.

We study the effect of subsidies subject to export share requirements (ESR) that is, conditioned on a firm exporting at least a given fraction of its output - on exports, the intensity of competition and welfare, through the lens of a two-country model of trade with heterogeneous firms. Our calibrated model suggests that this type of subsidy boosts exports more and provides greater protection for domestic firms than a standard unconditional export subsidy, albeit at a substantial welfare cost.

China has transitioned from being an almost autarkic economy to become the world’s largest exporter in less than three decades. Given this unique transformation, this paper investigates if the key stylized facts that characterize the behavior of firms’ exports around the world, can also describe China’s experience after joining the World Trade Organization. We find that, consistent with received wisdom, relatively few Chinese firms engage in exporting, and those doing so, are on average, larger and more productive than their domestic counterparts. However, unlike other large and developed countries, a substantial share of Chinese exporters sell the majority of their output abroad. In fact, the distribution of Chinese exporters according to their export intensity —the share of their revenues accounted for by exports— is strikingly bimodal. In con-trast to recent work that has focused on the technological factors that explain the prevalence of high-intensity exporters, we instead concentrate on the role played by China’s heterodox trade policy regime in promoting pure exporters. Our empirical analysis suggests that trade policy has played an instrumental role in fostering a dual export sector. Notably, nine out of ten manufacturing exporters in China are eligible to enjoy fiscal incentives contingent on export performance.

The Dominican Republic is often considered an example of the successful implementation of Special Economic Zones (henceforth SEZs) in the Western hemisphere. The zones fueled economic growth during the 1980s and 1990s and, while they experienced a sharp decline in employment due in part to the expiry of the end of the Multi-Fiber Agreement and stronger international competition in the textile and apparel industry in 2005, signs of recovery have been observed since 2009. Surgical equipment, chemicals and plastics, and footwear have recently emerged as the new drivers of export dynamism in the zones (World Bank, 2015). The objective of this report is to inform the policy discussion around the developmental impact of SEZs in the Dominican Republic by empirically assessing i) the implications of regulatory reforms aimed at complying with WTO disciplines regarding the elimination of incentives conditioned on export performance for SEZs firms, ii) the extent to which SEZs participate in Global Value Chains, and iii) their linkages with domestic suppliers. The report is organized as follows: The second section presents the historical importance of SEZ as an engine of economic growth in the country. The third section depicts the structural shift in terms of production in SEZs and evaluates the degree of value addition taking place in the Dominican Republic. The fourth section evaluates the degree and evolution of linkages between SEZs and local firms. The fifth section shows the impact of the regulatory changes in the SEZ regimen undertaken to comply with WTO disciplines. Finally, some conclusions and policy recommendations are presented in section six.

Headquarters and their specialized component suppliers have a vital interest in establishing long-term collaborations. When formal contracts are not enforceable, such efficiency-enhancing cooperations can be established via informal agreements, but relational contracts have been largely ignored in the literature on the international organization of value chains. In this paper, we develop a dynamic property rights model of global sourcing. A domestic headquarter collaborates with a foreign input supplier and makes two decisions in every period: i) whether to engage in a costly search for a better partner, and ii) whether to make a non-binding offer to overcome hold-up problems. Our key result is that the possibility to switch partners crucially affects the contractual nature of buyer-supplier relationships. In particular, some patient firms do not immediately establish a relational contract, but only when they decide to stop searching and thus launch a long-term collaboration with their supplier. Using firm-product-level data of fresh Chinese exporters to the US, we obtain empirical evidence in line with the predictions of our theory.

Special economic zones, one of the most important instruments of industrial policy in developing countries, often feature export share requirements. That is, firms located in these zones are obliged to export more than a certain stated share of their output to enjoy the wide array of incentives available there, a practice prohibited by the World Trade Organization. This paper exploits the staggered removal of export requirements across products and over time in the special economic zones of the Dominican Republic to evaluate whether the importance of exports originating from the zones was affected by the elimination of export requirements. The findings show that entry increased among firms in special economic zones, while the average value of export transactions fell for existing exporters following the reforms. At the same time, continuous exporters were unaffected by the policy change, possibly because these firms were not constrained by the export requirement. Overall, special economic zones became more important with respect to the number of exporters based there but not in terms of the value of exports. The findings suggest that the elimination of performance requirements made it more attractive for firms to be based in special economic zones.

This paper presents a simple model of subsidies with export share requirements (ESR) in a heterogeneous firm environment. A two-country general equilibrium version of the model with a single 100% ESR is calibrated using firm-level data from the 2002 wave of the Business Environment and Enterprise Performance Survey collected by the World Bank for China. The calibrated model is used to gauge the change in subsidies with ESR that is consistent with the fall in the share of ‘pure exporters’, firms exporting all their output, observed in China, from 25.7% in 2002 to 11.1% in 2013. Our results indicate that a 6.9% reduction in the ad-valorem subsidy rate available to firms that export all their output is consistent with the observed fall in their share of exporting firms. Expenditure in subsidies (as a share of value-added) falls by 66% and welfare in China increases by 1.76% while real income in the rest of the world falls by 0.59%.

This paper presents a simple model of subsidies with export share requirements (ESR) in a heterogeneous firm environment. A two-country general equilibrium version of the model with a single 100% ESR is calibrated using firm-level data from the 2002 wave of the Business Environment and Enterprise Performance Survey collected by the World Bank for China. The calibrated model is used to gauge the change in subsidies with ESR that is consistent with the fall in the share of ‘pure exporters’, firms exporting all their output, observed in China, from 25.7% in 2002 to 11.1% in 2013. Our results indicate that a 6.9% reduction in the ad-valorem subsidy rate available to firms that export all their output is consistent with the observed fall in their share of exporting firms. Expenditure in subsidies (as a share of value-added) falls by 66% and welfare in China increases by 1.76% while real income in the rest of the world falls by 0.59%.

In this paper, we provide evidence that expanding firms tend to serve new markets which are geographically close and culturally related to their prior export destinations. We quantify the impact of this spatial pattern using a Chinese firm-level data set. To ensure an exogenous set of potential new destinations (25 EU countries, US and Canada) and an exogenous timing of entry, we focus on firms that benefited from the abrupt end of the textile quota restrictions in 2005. Controlling for firm-product and destination specific effects and accounting for possible multiple new export destinations we show that the probability to export to a country increases by 15 to 38 percent for each prior export destination with a geographical or cultural link with this country.