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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Intermediates Offshoring, Textile and Clothing, Demand Shock, Quota Removal
• Subjects: F - International Economics > F1 - Trade > F10 - General; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms

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