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Trade liberalization induced profitability enhancement? The impact of intermediate input imports on firm profitability

Qiuyao Fu, Teng Zhang and Yunong Li

Journal of Asian Economics, 2021, vol. 75, issue C

Abstract: Using the detailed data on production and transaction of Chinese manufacturing firms, we investigate how the input tariff liberalization affects firm profitability and explore the underlying channels of this effect. We find that input tariff reduction significantly increases firms’ profitability. Our finding is robust to a variety of specifications. We further find that the quality upgrading of imported intermediate inputs and the reduction of inventory costs are the main reasons for the profit-enhancing effect of input tariff reduction. Our study has important policy implications for the economic growth in the long run and the economic recovery during the epidemic of COVID-19.

Keywords: Input tariff reduction; Firm profitability; Intermediate inputs; Inventory (search for similar items in EconPapers)
JEL-codes: F14 F15 L25 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.asieco.2021.101328

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