Processing Trade, Tarff Reductions, and Firm Productivity : Evidence from Chinese Firms

This paper explores how reductions in tariffs on imported inputs and final goods affect the productivity of large Chinese trading firms, with the special tariff treatment that processing fi rms receive on imported inputs. Firm-level input and output tarffs are constructed. Both types of tariff reductions have positive impacts on productivity that are weaker as firms share of processing imports grows. The impact of input tariff reductions on productivity improvement, overall, is weaker than that of output tari¤ reductions, although the opposite is true for non- processing firms only. Both tariff reductions are found to contribute at least 14.5% to economy-wide productivity growth