Globalization and product reshuffle
In this paper we present a model that incorporates the import capabilities into the interim decisions. Our tractable framework generates several interesting implications.
A reduction in input tariffs induce the product more distant from the core product to increase export value more, and hence reduces the gap in export value among products, while a reduction in output tariffs induce the product more distant from the core product to decrease export value more, and hence increase the gap in export value among products.
Using a detailed and highly disaggregated data in China in the period 2000-2006, we provide evidence to our theoretical predictions, especially when we limit the sample to countries who are important importing or/and exporting trade partners of China. These findings are robust to various specifications.