Nber Working Paper Series a Structural Model of Demand, Cost, and Export Market Selection for Chinese Footwear Producers

In this paper we use micro data on both trade and production for a sample of large Chinese manufacturing firms in the footwear industry from 2002-2006 to estimate an empirical model of export demand, pricing, and market participation by destination market. We use the model to construct indexes of firm-level demand, cost, and export market profitability. The empirical results indicate substantial firm heterogeneity in both the demand and cost dimensions with demand being more dispersed. The firm-specific demand and cost components are very useful in explaining differences in the extensive margin of trade, the length of time a firm exports to a destination, and the number and mix of destinations, as well as the export prices, while cost is more important in explaining the quantity of firm exports on the intensive margin. We use the estimates to analyze the reallocation resulting from removal of the quota on Chinese footwear exports to the EU and find that it led to a rapid restructuring of export supply sources in favor of firms with high demand and low cost indexes. Mark J. Roberts Department of Economics 513 Kern Graduate Building Pennsylvania State University University Park, PA 16802 and NBER [email protected] Daniel Yi Xu Department of Economics Duke University 213 Social Science Bldg 419 Chapel Drive Box 90097 Durham, NC 27708-0097 and NBER [email protected] Xiaoyan Fan Department of Economics Fudan University [email protected] Shengxing Zhang Department of Economics New York University [email protected]