Diversification or Specialization? The Responses of Multi-Product Exporters to Quota Removal

Ruxue Bai (), Lei Li (), Ying Li () and Libo Yin ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper investigates how multi-product firms narrow their product scope and target fewer export destinations in response to increased demand. Focusing on the effects of quota removal, we show that an increase in demand for quota-bound products crowds out quota-free products through cannibalization, and reduces exports to quota-free destinations through capacity constraint. Consistent with the theory, our findings reveal a 25% increase in product concentration and a 2% increase in destination concentration among Chinese exporters after the removal of externally imposed quotas on textile and clothing exports. The increasing concentration is due to the export shifts from quota-free to quota-bound products and destinations. Subsequently, affected firms exhibit better capital market performances, with a 5% higher abnormal return within the three-day event window.

Keywords: Import quota; multi-product firms; cannibalization effect; diversification; demand linkages; supply linkages; exports; stock market (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 (search for similar items in EconPapers)
Pages: 65
Date: 2024-04
New Economics Papers: this item is included in nep-int
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