Essays on firm performance in China

Abstract

Does trade liberalization have long-lasting effects? We answer this question by exploiting a forced trade liberalization in historical China, the treaty port era (1843-1943). Using Chinese firm-level data from 1998 to 2007, we find that firms in the prefectures with historical treaty ports tend to perform better in various export activities, including export participation, export intensity, and export value, than those in the prefectures without the treaty ports, indicating the importance of trade liberalization in the long-run economic development. This finding is robust to a set of sample and specification checks. The heterogeneous effects of the treaty ports suggest that the trade liberalization appears to continue enhancing firms’ export performance today, particularly through Chinese private firms and R&D intensive and capital intensive activities. We also find that the increased incentives for firms’ export are related to information channel through market intensive activities and historical foreign connection.

We use Chinese firm-level data from 2001 to 2007 to investigate effects of a 2003-R&D reform, which extends the preferential R&D tax credits previously available for State-Owned Enterprises (SOE) and Collectively-Owned Enterprises (COE) to private firms in 2003. We conduct a solid DID analysis, with all SOE and COE in our control group and all qualified private firms in our treatment group, and find that the 2003-R&D reform has statistically significant and positive effects on firms’ R&D investments. Quantitatively, the reform raises firms’ R&D investments by 6.68% and the estimated R&D elasticity of tax deduction for private firms is 0.9147. Our main finding is robust to various specification checks. We also conduct a set of analyses on heterogeneous effects, which helps unveil several mechanisms behind the influence of the 2003-R&D reform on firms’ R&D investments. Our further estimates from both empirical methods and structural static model suggest that firm productivity can be improved by the increased R&D induced by the 2003 reform.