Speeding Up the Product Cycle: The Role of Host Country Reforms

44 Pages Posted: 30 Oct 2011

See all articles by Liugang Sheng

Liugang Sheng

University of California, Davis

Dennis Tao Yang

Chinese University of Hong Kong - Department of Economics

Abstract

We study the effects of policy reforms in the South on the decisions of intrafirm and arm's length production transfers by Northern firms. We show theoretically that relaxing ownership controls and improving contract enforcement can induce multinational companies to expand product varieties to host developing countries, and that a combination of the two reforms has an amplifying effect on product transfers. Consistent with these implications, we find that ownership liberalization and judicial quality played an important role in raising the extensive margin of processing exports in China for the period of 1997-2007. Our findings imply that institutional reforms in developing countries can effectively speed up the product cycle.

Keywords: product cycle, ownership structure, contract environment, export variety, processing trade, China

JEL Classification: D23, F14, L24

Suggested Citation

Sheng, Liugang and Yang, Dennis Tao, Speeding Up the Product Cycle: The Role of Host Country Reforms. IZA Discussion Paper No. 6054, Available at SSRN: https://ssrn.com/abstract=1951345 or http://dx.doi.org/10.2139/ssrn.1951345

Liugang Sheng

University of California, Davis

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Dennis Tao Yang

Chinese University of Hong Kong - Department of Economics ( email )

Shatin N.T.
Hong Kong
Hong Kong

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