Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese ExportersArticle Citation

Khandelwal, Amit K., Peter K. Schott, and Shang-Jin Wei. 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters." American Economic Review,103(6): 2169-95.

DOI: 10.1257/aer.103.6.2169


Abstract

If trade barriers are managed by inefficient institutions, tradeliberalization can lead to greater-than-expected gains. We examineChinese textile and clothing exports before and after the eliminationof externally imposed export quotas. Both the surge in exportvolume and the decline in export prices following quota removalare driven by net entry. This outcome is inconsistent with a modelin which quotas are allocated based on firm productivity, implyingmisallocation of resources. Removing this misallocation accountsfor a substantial share of the overall gain in productivity associatedwith quota removal.