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The Impact of Demand Shocks on Firm-Level Offshoring Behavior: Theory and Evidence

Tan, Yong and Shao, Yuchen (2016): The Impact of Demand Shocks on Firm-Level Offshoring Behavior: Theory and Evidence.

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Abstract

This paper extends the model of Antras et al.(2014) to disentangle the link between demand shocks and firm-level offshoring decisions. The model predicts that a positive demand shock increases the firm-level purchases of imported intermediates in both the extensive and intensive margins. Using a difference-in-difference approach, we examine the response of Chinese exporters to a quota removal on textile and clothing products, which is equivalent to a positive demand shock. The findings indicate that firms import more varieties and higher volumes of intermediates after the quota removal. The results are robust to different regression designs.

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