Export Demand Shocks and Multi‐Product Firms: Evidence From China

ABSTRACT This paper examines how export demand shocks affect firms' export portfolios and, through within‐firm product reallocation, promote the productivity of multi‐product firms. Combining Chinese micro‐level data with global bilateral trade data from 2000 to 2007, this paper constructs measures of destination‐specific export demand shocks and export skewness. We find that positive export demand shocks in foreign markets induce firms to concentrate a larger share of their export sales in better‐performing products. This finding is robust to alternative measures of export skewness, potential sample selection concerns and controls for changes in trade policy. Furthermore, positive export demand shocks are associated with higher firm productivity, and the evidence suggests that increased export concentration constitutes an important channel underlying these productivity gains. Consistent with a within‐firm reallocation mechanism, the productivity‐enhancing effect of export demand shocks is concentrated exclusively among multi‐product firms.