Lose to gain: Heterogeneous impact of trade policy uncertainty on firms’ domestic sales

Qing Liu, Yuqing Li, Shuaihang Li and Feifei Wu

Economic Modelling, 2023, vol. 119, issue C

Abstract: How do firms adjust their domestic sales in response to external shocks? Based on the data of China's industrial enterprises in the years around China's World Trade Organization accession, this study uses the difference-in-differences method to empirically analyze the impact of trade policy uncertainty (TPU) on firms' domestic sales. The findings show that TPU decline has significantly decreased firms' domestic sales and that the effect is most pronounced for the least productive firms. We present a market-directed transformation story, which predicts that less productive firms are more willing to lose domestic sales to gain exports. The results of further empirical analysis are consistent with theoretical predictions.

Keywords: Trade policy uncertainty; Domestic sales; Market-directed transformation (search for similar items in EconPapers)
JEL-codes: D22 F10 F13 F14 F20 L20 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003558

DOI: 10.1016/j.econmod.2022.106118

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