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| The Construction of a Unified National Market, the Rise in Firms' Cross-Regional Sourcing of Intermediate Goods, and Export Growth |
| YU Lili, YUAN Jin
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Institute of International Business, Shanghai University of International Business and Economics;
School of Economics,Fudan University;
School of Public Finance & Taxation, Guangdong University of Finance & Economics |
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Abstract In recent years, the global supply chain has been undergoing a phase of accelerated restructuring, introducing considerable uncertainty to the participation of Chinese firms in the international division of labor and the realization of export growth. To this end, deepening domestic openness and refining the division of labor within the country to restructure industrial and supply chains, thereby enhancing export competitiveness and achieving steady yet progressive export growth, is not only a fundamental requirement for building a unified national market but also a crucial pillar for advancing the new development paradigm of mutually reinforcing “dual circulation” featureing positive interplay between domestic and international economic flows. Both macro-level data and micro-level studies (e.g., Kee and Tang, 2016) indicate that achieving steady and sustained export growth increasingly depends on the domestic configuration of intermediate goods production. In this context, the paper adopts a novel focus on firms' cross-regional sourcing of intermediate goods to examine the effects and mechanisms of market integration on export growth, providing theoretical foundations and policy guidance for reducing costs and increasing the efficiency of the domestic industrial chain, and promoting sustainable foreign trade development.
From a theoretical perspective, this paper revises the framework proposed by Halpern et al. (2015) to construct a unified model linking domestic division of labor with export growth. Within the context of building a unified national market, it examines the impact and transmission mechanisms of increased cross-regional sourcing of intermediate goods by firms on export performance. Theoretical analysis suggests that a higher share of cross-regional sourcing, as facilitated by market integration, promotes export volume through productivity gains, while also influencing export diversification through the combined effects of productivity improvement and reduced incentives for R&D investment.
From an empirical perspective, this paper adopts the lens of firms' cross-regional sourcing of intermediate goods to investigate the impact and transmission mechanisms of unified market development on export growth, using matched data from China's Customs Statistics and listed company databases. The results show that a one-percentage-point increase in the share of cross-regional sourcing of intermediate goods leads to a 0.2845% increase in the quantity of firm exports to a specific destination-product pair, and a 0.0737% increase in the number of product varieties exported to a given destination. The former effect is primarily driven by productivity gains, while the latter reflects the combined influence of productivity improvement and reduced incentives for R&D investment.
This study carries significant policy implications. First, it highlights the need to strengthen domestic openness by dismantling inter-regional market segmentation and advancing the development of a unified national market. Second, it underscores the importance of improving both the quality and diversity of domestically produced intermediate goods to support the modernization of domestic industrial chains and safeguard the security and resilience of national supply chains. Third, it is essential to enhance cross-regional sourcing of intermediate goods in line with firm-level heterogeneity, in order to boost productivity and promote export growth.
The marginal contributions of this paper are as follows. First, it addresses the limitations of existing literature that primarily measure market integration from a macro perspective by identifying the increase in firms' cross-regional sourcing of intermediate goods as a salient indicator of the development of a unified national market. This allows for the establishment of a firm-level analytical lens to examine the relationship between domestic market integration and international export growth. Second, this study extends the theoretical framework of Halpern et al. (2015) by incorporating domestic specialization in intermediate goods and international exports, and further introduces firms' decisions regarding product line expansion. In doing so, it develops an innovative theoretical model linking the construction of a unified domestic market with export growth through the lens of cross-regional intermediate input sourcing, thereby enriching the theoretical foundation for the dual circulation pattern. Third, adopting this micro-level perspective, the paper empirically investigates the impact of unified market development on both the intensive and extensive margins of firm-level exports, alongside its transmission mechanisms and heterogeneous effects. The empirical findings not only lend strong support to the theoretical propositions but also help mitigate potential upward biases in previous studies that rely solely on macro-level measures of market integration when assessing firm-level export performance.
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Received: 25 September 2024
Published: 02 May 2025
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