Abstract:
The paper examines trade diversion effects of China`s VAT export rebates within a gravity framework. The findings suggest that increase in rebate by 1% causes 1% decrease in export of third countries and 1/3% decrease in prices. The study identifies 165 country-specific estimates observing a high degree of effects` heterogeneity across countries. These estimates are employed as dependent variable to reveal determinants of the heterogeneity. The results suggest that countries that export higher-quality goods or have lower export diversification are hurt more by China`s rebates. The effects` decomposition for trade in quantity and prices reveal patterns in exporters` competition strategies.
Svetlana Ledyaeva is currently an Assistant Professor at the Department of Economics of Aalto University School of Business. She holds a PhD degree in Economics from Aalto University School of Business. Prior to joining the Department of Economics, she has been working at the Center for Markets in Transition of Aalto University School of Business and University of Eastern Finland. She has published papers in such journals as Economic Geography, Energy Economics, Journal of International Management, and World Economy.