Special economic zones, export status, and firms' productivity: Theory and evidence from China

This paper explores the impact of special economic zones (SEZs) policy and export status on firms' productivity. We first sketch a theoretical model to explain the selection mechanism of different types of exporters and SEZ firms, and provide the productivity ranking of firms. SEZ's exporters have the highest productivity. Firms facing high imported intermediate tariffs will select themselves into SEZs to avoid imported input tariffs; firms become non-SEZ's exporters when their intermediate inputs tariffs are low. Compared with other types of firms, non-SEZ's non-exporters have the lowest productivity. Then, we empirically test the productivity ranking by firm-level data, and the results are consistent with our theoretical framework. Besides, different SEZ policies are associated with heterogeneous impacts on the firms' productivity. Our paper further suggests that preferential policies are responsible for the productivity ranking of firms.