Scale, scope, and trade dynamics of export processing plants (working paper)

Abstract

Export processing (EP) is the main type of exports for many emerging markets. This paper compares and contrasts export patterns and dynamics of EP firms with those of ordinary (non-processing) exporters, using transaction-level data for the universe of Chinese trading firms over 2000-2006. We establish five stylized facts: compared to ordinary exporters, EP firms (1) are larger but less diversified in both products and destinations within the same industry; (2) start exporting with a larger volume but exhibit less upward mobility; (3) grow less both in the first year of entry and over time (within a market); (4) are less likely to move up to higher sales quintiles over time; (5) are more likely to start selling to more distant markets but less likely to penetrate into new markets after the first year of exporting. These facts provide new insights to interpret aggregate export performance of countries that have different prevalence of EP. We discuss how a standard heterogeneous-firm model augmented with different export profit uncertainties facing the two types of exporters can explain all five facts.