Factor Intensity, Product Switching, and Productivity: Evidence from Chinese Exporters. Development Working Papers 324, Centro Studi Luca d'Agliano

This paper analyzes the causal relations between \u85rmsproductivity, factor intensity and export participation. Using propensity score matching techniques and \u85rm-level panel data for Chinese manufacturing \u85rms over the 1998-2007 period, we \u85nd strong evidence of domestic \u85rms self-selecting into export markets with higher productivity ex ante, and enhanced productivity ex post. No such pattern is observed among foreign-invested \u85rms. We also \u85nd that both domestic and foreign new exporters exploit Chinas low labor costs and specialize in their core competence, that is, \u85 rms become less capital-intensive after exporting, relative to the matched non-exporting counterparts in the same industry. To rationalize these results that contrast with most \u85ndings in the existing literature, we develop a variant of the multi-product model of Bernard, Redding, and Schott (2010) to consider varying capital intensity across products. Using transaction-level export data, we \u85nd evidence that Chinese exporters add new products that are more labor-intensive than existing products and drop products that are less labor-intensive, supporting the model predictions. Firms with a bigger decline in capital intensit