Managerial Incentives and the Organization of Chinese Processing Trade

Huiya Chen and Deborah Swenson ()

Asia-Pacific Journal of Accounting & Economics, 2010, vol. 17, issue 3, 235-252

Abstract: Chinese processing trade has grown considerably as firms adopted a wide array of organizational forms to have their products assembled in China for export. To understand the organization of processing trade we modify Grossman and Helpman's (2004) model of managerial incentives to account for the economic costs associated with firms' input control decisions in China. We examine Chinese processing trade between 1992 and 2003 to test the model's predictions. As predicted by the model, we find that firm productivity is related to processing choices. In addition, the organization of processing trade is found to match tariff levels at the product level.

Date: 2010
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DOI: 10.1080/16081625.2010.9720864

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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