TDPE presents: Dan Lu

Dan Lu (University of Rochester and Princeton University) Exceptional Exporter Performance? Evidence from Chinese Manufacturing Firms This paper uses Chinese firm-level data to document facts that run counter to the accumulated evidence about exporting firms and provides a model that reconciles these contrasting patterns. The new facts are: (1) China’s exporters are typically less productive and sell less in the domestic market than non-exporters, and (2) the distribution of export intensity exhibits a U-shape, with more than half of China.s exporters exporting most of their output. The new facts call into question the generality of recent trade theory, which has been extremely successful in explaining the behavior of exporters in developed countries. However, Lu shows that the economic forces described by Melitz (2003), when properly interpreted, are exactly the ones needed to explain the observed patterns among Chinese firms. When countries differ in their factor endowment, sectors that are intensive in the locally abundant factor face higher competition in the domestic market than in foreign markets. Hence domestic rather than export markets select the most efficient firms. In the Chinese data, both the productivity differences between exporters and non-exporters as well as the distribution of export intensity are systematically related to the labor intensity of the firm or its industry. Lastly, Lu shows that her model correctly predicts the effects of trade liberalization in China.