Science Research Management ›› 2020, Vol. 41 ›› Issue (6): 109-118.

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Domestic market competition, total factor productivity and international trade

Ruan Min1, Jian Ze2   

  1. 1. School of Economics, Jiangxi University of Finance and Economics, Nanchang 330013, Jiangxi, China; 2. School of Business, Guangdong University of Finance and Economics, Guangzhou 528100, Guangdong, China
  • Received:2017-07-02 Revised:2018-06-04 Online:2020-06-20 Published:2020-06-20

Abstract: A very important typical fact is that only a handful of companies export in international trade activities. Therefore, the export is the story of "few lucky ones". Compared with other economies, China′s manufacturing sector shows a higher rate of export participation. In the neoclassical international trade theory, the inspection of export-driven forces is mainly focused on the comparative advantages determined by differences in the endowments of production factors between different countries.The existing research suggests that the decline of the cost of trade is the main reason for the high export tendency of Chinese manufacturing enterprises. Thus the new and new trade theory shows that an enterprise exports depends on two factors: first, the size of trade costs; second, the level of the company′s productivity. Therefore, under the perspective of the new and new trade theory, the interaction between trade cost and productivity determines the export inclination at the firm level. In the literature on productivity analysis, productivity at the firm level depends on two factors: first, the internal characteristics of the firm, such as corporate management practices, the quality of inputs, research and development inputs, etc.; second, and the market competition environment outside the enterprise. Market competition outside the enterprise plays a crucial role in promoting enterprise innovation and productivity improvement, which in turn becomes an important aspect of the micro-foundation of a country′s export competitiveness. The theory of international trade based on heterogeneous firms shows that a country′s export model is determined by the micro-level productivity characteristics. A common law is that high-efficiency company′s export, while inefficient companies do not export. By introducing the role of market structure, this article shows that different domestic market structures result in different productivity distributions among firms, while different productivity distributions lead to differences in export participation and export performance at the macro level. Thus, to some extent, it reveals the intrinsic link between the heterogeneity of firms at the micro level and the difference in export performance at the macro level. Using an intermediary role model, this article expands the study of the relationship between domestic competition and corporate export preferences to a structural causality analysis, and then reveals the specific mechanisms through which domestic competition drives the export of firms through productivity channels. According to the perspective of domestic competition, this paper analyzes the impact of domestic competition on the export orientation of Chinese manufacturing enterprises. The first, the degree of competition in the domestic market is positively related to the export orientation of the enterprise. Fierce domestic competition has promoted the export of enterprises, especially in those capital-intensive industries that are relatively disadvantaged. The second, we have identified the mechanism for domestic competition to promote corporate exports. The domestic competition has promoted the growth of the total factor productivity of the enterprise level, and then promotes the export competitiveness of enterprises through the promotion of export competitiveness. The third, domestic competition not only promotes the export of more enterprises, but also promotes the export intensity of enterprises in the intensive margin. These results indicate that domestic competition constitutes an important driver of China′s export growth, both on the margin of expansion and on the intensive margin. In terms of policy, this means that our policy of promoting exports should shift more towards microeconomic policies centered on fostering competitive markets in order to create conditions for the growth of corporate productivity and export competitiveness. Our policy of promoting exports cannot aim only at those industries that have a comparative advantage in the international market, but should extend our attention to policies that promote the competitiveness of all sectors of exports. We believe that the strengthening of competition in the domestic market can encourage more companies to cross the threshold of export productivity by promoting the growth of total factor productivity at the corporate level, and then, from the perspective of expansion, promote the growth of export trade in various industries. After the threshold of export productivity, the strengthening of competition in the domestic market can also increase the export intensity of export enterprises, and in turn, promote the growth of export trade of various industries from the intensive margin.Therefore, the export of policy should be more to foster competitive market as the center of the micro economic policy.

Key words: domestic market competition, total factor productivity, export tendency