Input-Trade Liberalization, Export Prices and Quality Upgrading

This paper explores the impact of input-trade liberalization on imported input and exported product prices. Using Chinese transaction data for 2000-2006, we capture causal effects between exogenous input tarif reductions and within firm changes in HS6 traded product prices. Identifcation is based on a quasi-natural experiment where some forms are exempt from paying tariffs and stand as a control group. Both imported input and export prices rise. The effect on export prices is specific to forms sourcing inputs from developed economies and exporting output to high-income countries. Results are consistent with a scenario within which forms exploit the input tariff cuts to access high-quality inputs in order to quality-upgrade their exports.