Dissertation > Economic > Trade and Economic > International trade > International Trade Theory and methods

Trade Liberalization,Contractual Environment and Total Factor Productivity

Author LiuBin
Tutor ZhuTong
School Nankai University
Course International Trade
Keywords Trade Liberalization Contractual Environment Total Factor Productivity
CLC F740
Type PhD thesis
Year 2013
Downloads 48
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Free trade criteria pursued by the neo-classical is the cornerstone of the world trading system. Market-oriented reforms are still the way forward for China. These "true essences" has not changed. In recent years, institutional economists and the new-new trade theory emphasizes the importance of the contract, which provides a new perspective for today’s scholars of international economics and institutional economics. An important research direction of international economics is to maximize the economic benefits of trade liberalization, while the role of institutional economics analysis is to make people aware of the obstacles that prevent people from achieving the intended targets in real life, so that we improve the system and the rules to overcome the resistance in the market-oriented process (including trade liberalization), in order to achieve the maximum economic benefit. The focus of this paper is the institutional barriers to the economic benefits of trade liberalization.China’s unique economic system provides a natural testing ground for scholars to inspect the implementation of contract on economic performance. In the microscopic field, the scale of China’s enterprises is expanding continuously, the economic benefits of the enterprise is improving, and the total factor productivity increases at an annual growth rate of4%on average during the three decades of reform and opening up. Closely related to this fact is that since the accession to the World Trade Organization in2001, China’s tariff level has been significantly reduced, non-tariff barriers such as quotas, import license have been greatly reduced, and China is holding a more "open" attitude to integration into the global economy. Incompatible with the economic development, however, the existing legal system is not perfect, and the gap among different regions in geography, culture, economic development level and ruling ability leads to significant regional differences in the degree of contract completeness in our country. In short, the deepening of the economic openness and the lagging institutional environment coexist, the improvement of the overall enterprise productivity and the gap of regional (or inter-industry) productivity coexist. China’s special economic and institutional situation inspired this paper’s theoretical study in the relationship between trade liberalization, contractual environment and enterprise productivity.The mechanism of trade liberalization’s influence on firm productivity may be affected and constrained by contractual environment. Though trade liberalization reduces tariff and expands the range of the use of intermediate inputs, only in those regions with a sound legal system can enterprises successfully sign contracts, and obtain intermediate inputs "faster" and "better", improve the productivity and benefit from trade liberalization. On this basis, this paper establishes the appropriate econometric model. First, on the basis of the research of Nunn(2007), Reshad Nazir Ahsan (2010) and other scholars, this paper introduces interaction term of trade liberalization and contractual environment in order to test whether the mechanism of trade liberalization on firm productivity can be affected by the contractual environment. Secondly, the calculation and selection of key indicators (trade liberalization, contractual environment and enterprise productivity) in econometric models are explained. Additionally Ⅰ carry out a more detailed description about the source of Chinese industrial enterprises database.On the basis of the theoretical and econometric models, this article empirically analyzes influencing factors of the enterprise total factor productivity, and emphasizes the impact of trade liberalization and contractual environment on enterprise’s total factor productivity. First, by gradually adding the control variables, the article makes an econometric estimation of the basic model using ordinary least squares and two-stage least squares. And the article uses tariffs and other indicators as alternative indicators of trade liberalization for further robustness test. Then we investigate in detail the impact of trade liberalization and contractual environment on total factor productivity in different density of intermediate goods and draw meaningful conclusions:the role of trade liberalization on firm productivity will be affected by contractual environment, the higher the inputting density of intermediate goods, the more prominent this characteristic.The conclusion of the paper has some important policy implications. On the one hand, from the economic point of view, trade liberalization and improvement of the contractual environment is not only conducive to enhancing the productivity and competitiveness of companies in the region, but also conducive to narrowing the gap of the overall economic efficiency of enterprises in the region. On the other hand, trade liberalization is, in a deeper sense,"the way" of opening up, the optimization of the contract and institutional environment is the "driving force", and the improvement of enterprises’ productivity is the "purpose" of the reform and opening up. China’s current foreign policy of opening up needs support of its own internal "reform" in order to better achieve the economic benefits. Therefore, we should not only adhere to the external open-door policy, but also continue to steadily promote internal institutional reform.

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