Learning from processing trade: Firm evidence from China, a paper co-authored by our school’s Wang Yaqi, Bai Xue from Brock University, Canada, and Hong Shengjie from the School of Economics and Management, Tsinghua University, was published in the 49th Volume of Journal of Comparative Economics, a first-class journal on comparative economics, in June 2021.

Processing trade is one of the very active forms of international trade in the modern economy. For many developing countries, given the share of processing trade in exports, promoting processing trade is also a crucial part of the efforts to promote exports and overall economic growth. For instance, in China, currently the world’s largest exporter, processing export accounts for a large share in trade overall. In this paper, focusing on firm-level dynamics, we show that firms learn from their processing export experience to improve their subsequent ordinary export outcomes. Using transaction-level trade data from China Customs and firm-level data from annual industrial production surveys, we prove the existence of learning effects from processing export through data analysis. Firms export products with improved quality after engaging in processing exports of similar products. Furthermore, we investigate potential channels through which firms learn from processing experience. We find that firms improves their subsequent ordinary export performance through important channels such as information about product requirements and intermediate inputs, and more advanced production technologies.