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| Service Trade Liberalization, Marketization, and the Productivity of China's Manufacturing Firms |
| PENG Shuijun, SHU Zhongqiao
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| School of Economics, Xiamen University |
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Abstract The servitization of manufacturing has become a significant trend in the development of global manufacturing, and it is also an important part of the upgrading of China's manufacturing value chain. After the 2008 financial crisis, China's service imports grew rapidly, and net service imports have continued to expand. As the competitiveness of China's service industry is relatively low, it is critical to explore whether service trade openness promotes the development of the service industry, the production efficiency of Chinese manufacturing enterprises, and the upgrading of the value chain.
First, although China's economic growth has steadily progressed, most studies of the impact of service trade openness on manufacturing are based on data before 2007 and thus cannot address the current situation. Second, the definition of service sectors in the literature is relatively narrow. Finally, few studies consider the regulatory role of marketization in the process of service trade openness.
Our main contributions are as follows. First, we build a theoretical framework and then empirically analyze the effects of service trade openness on the labor productivity of manufacturing enterprises under domestic product substitution. More importantly, we explore the regulatory effect of marketization on the openness of service trade. Second, we use the Chinese Industrial Enterprise Database for 2012 and the Service Trade Restriction Index (STRI) of the World Bank, which not only extends the research of Beverelli et al. (2017) to a firm-level study but also explains how the openness of service trade has both promoted the productivity of China's export-intensive manufacturing enterprises and inhibited the productivity of non-exporting enterprises. The productivity promotion effect of service trade openness on export enterprises is stronger in the non-eastern region, but the adverse impact of service trade openness on non-state-owned enterprises and non-export enterprises in the eastern region is even greater. Third, we discuss the regulatory effect of marketization on the openness up of China's service trade. The result shows that domestic marketization has a dual effect on the openness of service trade. Marketization has not only weakened the negative impact of the openness of service trade on non-export enterprises, but also strengthened the positive effect of service trade openness on export firms. Overall, our conclusions are different from those of other studies and provide meaningful policy insights for the establishment of China's dual-circulation development pattern: the international economic cycle should be kept open to promote development, and the domestic economic cycle should be used to expand domestic demand. Therefore, it is necessary to ensure that export firms benefit from trade liberalization, and also to prevent non-export firms from being exposed to excessive negative competition brought about by trade liberalization. Marketization has a vital role in both these functions. We also indirectly explain the improvements in the competitiveness of China's manufacturing products after its accession to the WTO, especially after the 2008 financial crisis. However, further research is needed to determine whether this improvement has been in quality or price.
We use firm-level theoretical and empirical analyses of Chinese data to explain the abnormal results in Beverelli et al. (2017). Unlike Zhang et al. (2013), Sun et al. (2018), Mao and Fang(2020), we use the STRI of the World Bank, which uses a broad definition of service sectors. Moreover, we consider more types of service trade approaches and more service trade sectors. As a result, the conclusions of this article are relatively novel. Although the empirical results show that the competitiveness of Chinese manufacturing products has improved to a certain extent, it is unclear whether this competitiveness comes from quality improvement, price advantage, or both. In addition, although the substitution effect of intermediate goods produced by manufacturing enterprises on imported intermediate goods cannot be observed directly, problems such as whether there is domestic service substitution for foreign services and how the liberalization of service trade affects the upgrading of China's service industry require further study.
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Received: 05 January 2021
Published: 02 December 2021
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