Import liberalization and export product mix

This paper develops a monopolistic competition model of multiproductfirms to explain the effect of trade liberalization on the product mix of multiproductexporting firms. The model shows that input-tariff reduction leads to increasesin a firm’s export values, especially for products that are farther from a firm’score competency. To test the theoretical predictions, we use the merged data builtupon the highly disaggregated Chinese firm-level production data and customsdata for 2000-2006. Consistent with the theory, the positive impact of input tradeliberalization on export value is found to be more pronounced for peripheralproducts, and input-tariff reduction also expands a firm’s product scope, affectingfirm’s average productivity