Import sourcing of Chinese cities: Order versus randomness

Keith Head, Ran Jing and John Ries ()

Journal of International Economics, 2017, vol. 105, issue C, 119-129

Abstract: Capitalizing on the geographic detail of Chinese customs data, we show that buyer heterogeneity plays a major role in import sourcing. Hierarchy compliance, a core prediction of supply-focused models, is tested by measuring the frequency with which cities import a narrowly defined good from the country observed to be the preferred source in the province. Hierarchy violation is widespread: 92% of province goods have at least one non-compliant city. We show that introducing granular importers into a standard heterogeneous firm model leads to a prediction of 73% compliance, close to the observed average of 66%. Extending the model to allow buyers from a city to share an orientation towards specific source countries, we calibrate a heterogeneity parameter to match the average observed compliance rate. The results imply that the supply side explains on average 44% of the variance in city-level sourcing probabilities, leaving the majority of variation due to heterogeneity in buyers across cities.

Keywords: Hierarchy; Trade; China; Granularity; Extensive margin (search for similar items in EconPapers)
JEL-codes: F12 F14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:105:y:2017:i:c:p:119-129

DOI: 10.1016/j.jinteco.2017.01.003

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