Do economic institutions matter for trade liberalization? Evidence from China’s Open Door Policy |
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Institution: | Institute of Industrial Economics/Center for Regulation and Competition, Jiangxi University of Finance and Economics, China |
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Abstract: | Trade liberalization can promote export by inducing better resource allocation and more advanced technologies. Although the literature emphasizes the mechanism of geographic proximity, this paper identifies an institutional effect. Using infant mortality rate as an instrument that is irrelevant to export and geographic effects, we confirm that the openness due to China’s Open Door Policy promotes firm exports. We further document that the positive relationship between openness and firm exports is mediated by property rights protection and corporate autonomy, either of which reflects institutional quality at the constraint on the government’s strategic behavior. In particular, our estimates are robust to different samples, different estimation methods, and endogeneity bias. |
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Keywords: | Trade liberalization Firm exports Property rights protection Corporate autonomy |
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