Figure M.1 characterizes the conditions for marginally constrained firms at t=0 and compares it with autarky. Firms with $$ \left(z^{\sigma-1}_{is},A_{is}\right)$$ above the green line are unconstrained as they own sufficient collateral to borrow their optimal amount of capital. The positive slope suggest that more productive firms require more assets to cover their demand for capital. With the additional need to meet foreign demand, exporters demand more labor and capital relative to autarky and are therefore more likely to face borrowing constraints; thus, the condition for marginally constrained exporters is steeper relative to autarky,
Firms with $$ \left(z^{\sigma-1}_{is},A_{is}\right)$$ below the solid green line are constrained at t=0, $$ \mu_{is0}>0$$.
The export cutoff condition across marginally constrained firms (dashed black line in figure M.2) is negatively related to the initial endowment: firms with more assets tend to become exporters even if their productivity is lower. Firms with $$ \left(z^{\sigma-1}_{is},A_{is}\right)$$ below the blue line are constrained in both periods. Among those firms, exporting firms with higher productivity require more assets to be able to export.
Figure 1 compares the distribution of labor products with the distribution of residuals from a re- gressions of labor returns on the profit margin, firm size, TFP, and sector-time dummies. The controls of our regression absorb some variability in the labor product, but the dispersion across residuals confirms the presence of distortions in output markets.
Figure 2 compares the distribution of capital products with the distribution of residuals from a regressions of capital returns on the profit margin, firm size, TFP, and sector-time dummies. The controls of our regression absorb some variability in the capital products, but the dispersion across residuals confirms the presence of distortions in capital markets.
Figure 3 displays the average dispersion across labor returns relative to 1998. Our point estimates are obtained from a regressions of labor residuals–after controlling for profit margin, firm size, and TFP–on yearly dummies. For example, in 2001, the residual dispersion across labor returns was 4% lower than in 1998. We also display the 95% confidence interval. We find that the dispersion across labor returns declines until 2004 but bounced back during the last years in our sample.
Figure 4 displays the average dispersion across capital returns relative to 1998. Our point esti- mates are obtained from a regressions of capital residuals–after controlling for profit margin, firm size, and TFP–on yearly dummies. For example, in 2001, the residual dispersion across capital re- turns was 10% lower than in 1998. We also display the 95% confidence interval. We find that the dispersion across capital returns continues to decline roughly monotonically until 2007.
Figure 5 identifies differences in output distortions across firms by the number of years they have been operating abroad. We looked at firms in 2007; the time span of our data implies that firms could have been exporting for at most 10 years by 2007. We show the estimates from a regression of residual returns on an indicator variable for each group; we also report the 95 percent confi- dence interval. The dispersion in labor returns across firms that have exported for one year is sig- nificantly smaller than that across non exporters; the point estimates indicate further reductions in dispersion for each additional year in the export market until reaching 8 years of experience. The effect partially rebounds for firms with the longest export experience, but it is not signifi- cantly different from that of firms that have just entered the export market.
Figure 6 identifies differences in capital distortions across firms by the number of years they have been operating abroad. We looked at firms in 2007; the time span of our data implies that firms could have been exporting for at most 10 years by 2007. We show the estimates from a regres- sion of residual returns on an indicator variable for each group; the results shown are relative to non-exporters. Figure 6 also shows the 95 percent confidence interval. Our estimates indicate a roughly monotonic decline in the dispersion across capital returns over the length of the export experience. Each additional year of exporting is associated, on average, with a 5.7 percent of a sd smaller dispersion across capital returns; firms that have been exporting for at least 10 years dis- play more than 50 percent of a sd lower capital distortions relative to non-exporters.
Figure 7 identifies within-firm differences in output distortions over their export experience; we select only firms with continuous exporting records. The time span of our data implies that a firm could have been exporting for at most 10 continuous years by 2007. We show the estimates from a regression of residual returns on an indicator variable capturing the number of exporting years for the firm; the results shown are relative to the year before entering the foreign market. Figure 7 also shows the 95 percent confidence interval. Our estimates indicate no additional effect on the dispersion across labor returns beyond the first year.
Figure 8 identifies within-firm differences in output distortions over their export experience; we se- lect only firms with continuous exporting records. The time span of our data implies that a firm could have been exporting for at most 10 continuous years by 2007. We show the estimates from a regression of residual returns on an indicator variable capturing the number of exporting years for the firm; the results shown are relative to the year before entering the foreign market. Figure 8 also shows the 95 percent confidence interval. Our estimates indicate that each additional year of presence abroad significantly reduces the dispersion across capital returns: A firm that has been exporting for at least 10 years experiences 4.4 percent of a sd lower frictions in capital choices rel- ative to the year prior to entry. Interestingly, the effect in the first exporting year is not signifi- cantly different from the year before entry: This finding is consistent with the firms’ inability to respond to contemporaneous shocks to market access due to the presence of borrowing constraints; however, as past sales mimic the behavior of additional collateral, firms are able to gradually over- come their borrowing constraints and expand their input demands over time.
Figure B1 reveals a decreasing trend in export tariffs during 1997 to 2011; the export tariffs are weighted by export flows. The decline accelerated in 2001, after China’s entry into the World Trade Organization. Export tariffs fell 3 percentage points between 2001 and 2004, from 12.4 per- cent in 2001 to 9.8 percent in 2004; they continued declining to 8.9 percent by 2007, the end of our sample period.
Figures B2 and B3 compare residual labor returns within prefectures between 1998 and 2007: The color-coded maps show the average distortion in each prefecture–obtained from a regression of residual returns on prefecture dummies–with darker colors denoting larger distortions. Lighter shades in 2007 suggest that the level of labor misallocation declined substantially over time.
Figures B2 and B3 compare residual labor returns within prefectures between 1998 and 2007: The color-coded maps show the average distortion in each prefecture–obtained from a regression of residual returns on prefecture dummies–with darker colors denoting larger distortions. Lighter shades in 2007 suggest that the level of labor misallocation declined substantially over time.
Figures B4 and B5 compare residual capital returns within prefectures between 1998 and 2007: The color-coded maps show the average distortion in each prefecture–obtained from a regression of residual returns on prefecture dummies–with darker colors denoting larger distortions. Lighter shades in 2007 suggest that the level of capital misallocation declined substantially over time.
Figures B4 and B5 compare residual capital returns within prefectures between 1998 and 2007: The color-coded maps show the average distortion in each prefecture–obtained from a regression of residual returns on prefecture dummies–with darker colors denoting larger distortions. Lighter shades in 2007 suggest that the level of capital misallocation declined substantially over time.Return to text.