The Impact of Input Trade Liberalization on the Entry of Foreign Firms: Evidence from a Quasi-Natural Experiment in China
利用中国加入WTO作为准自然实验，研究发现投入品贸易自由化显著促进了外资企业进入，并通过增加中间投入品种类和质量、降低边际成本等渠道发挥作用。
This paper integrates trade policy and foreign direct investment into a unified analytical framework, and investigates the effects of input trade liberalization on the entry of foreign firms. To identify the causal effects, we utilize China’s accession to the WTO in 2001 as a quasi-natural experiment, and perform difference-in-difference estimation. The results show that input trade liberalization significantly increases foreign entry. We also find that input trade liberalization not only promotes the entry of new foreign firms, but also restrains the exit of existing foreign firms, thereby contributing to the net growth of the number of foreign firms. The mechanism tests show that increasing variety as well as quality of intermediate input and reduction in marginal cost are the potential channels through which input trade liberalization promotes foreign entry. This paper further demonstrates that institutional environment strengths the positive effect of input trade liberalization on foreign entry, and the promotive effect of input trade liberalization on foreign entry increases with industry import intensity, additionally, input trade liberalization is also conducive to improving the quality of foreign investment.