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Yin Xiaopeng | Economies of Scale or Economies of Scope? Product Strategies of Chinese Multi - produ

Recently, the Center for International Finance and Economics Research (CIFER) of the National Institute of Financial Research at Tsinghua University hosted...Academic Symposium on "2022 International Trade Disputes and the Restructuring of Globalization"The event was successfully held.Institute of Global Value Chains, University of International Business and EconomicsProfessor andExecutive Vice PresidentYin XiaopengDoctoral student at the School of International Economics and Trade, University of International Business and EconomicsXiao YixuanAttendDepend onCIFER Part-time Researcher、Assistant Professor, School of Economics, Central University of Finance and EconomicsZhang JialiangHostPandemic, Economic Uncertainty and Geographic EconomicsSub-forum 8Sharing with collaborators on the topicEconomies of Scale or Economies of Scope? Product Strategies for Chinese Multi-Product Export Enterprises Amidst Uncertainty》(Economies of Scale or Economies of Scope? Product Strategy of Multi-product Export Enterprises in China Under Uncertainty）The article.

Yin XiaopengSince September 2009, he has served as the Director of the Department of International Trade at the School of International Economics and Trade, University of International Business and Economics (UIBE). Currently, he is the Executive Vice Dean of the Institute of Global Value Chains at UIBE. He is the founder, Secretary-General, and Treasurer of the International Economics and Finance Society (China), one of the initiators and Asian coordinator of the "Global Connection - Three Continents International Trade Policy Forum," the Deputy Secretary-General of the National Higher Education International Trade Discipline Collaboration Group, and the Vice President of the China Council for the Study of International Trade (CTRS).

Yin Xiaopeng

Xiao Yixuan

Against the backdrop of rising economic policy uncertainty in China and the world today, this paper focuses on Chinese multi-product firms, exploring the impact of domestic and international economic policy uncertainty on their export performance. Theoretically, a simple decision-making model for multi-product firms is constructed, combining the concept of economies of scope with economic policy uncertainty. Empirically, using customs-matched data from 2000 to 2014, the paper employs multiple fixed effects models and negative binomial regression to study the impact of economic policy uncertainty in trading partners on the dual marginals of exports for Chinese multi-product firms. Both the theoretical model and empirical results show that when economic policy uncertainty in trading partners increases, the scale of exports at the firm's destination level decreases, while the range of products exported at the destination level increases. Under the shock of uncertainty, firms tend to allocate resources previously used to expand existing product scale to developing more product varieties, shifting from economies of scale to economies of scope.

Dr. Xiao analyzed the evolution of international trade from three aspects: division of labor, market structure, and trade theory. Regarding trade phenomena, in recent years, intermediate goods trade has accounted for more than half of global trade, and it forms the foundation of value chain trade. Global value chains are showing signs of localization, regionalization, flattening, and shortening.

Shortening supply chains refers to the contraction of production processes caused by global production management adjustments. The aim is to achieve controllable production and optimized costs, using domestic production processes to replace cross-border production processes, and prioritizing increased production integration. The main reasons for this shortening include trade protectionism and anti-globalization trends; digital manufacturing technologies such as 3D printing, CNC machine tools, and industrial robots; and the COVID-19 pandemic.

Against the backdrop of the shortening of global value chains, this article provides firm-level evidence for this phenomenon by examining the behavior of multi-product exporting enterprises. It explores the questions: "Under uncertainty, how do Chinese multi-product exporting enterprises adjust their product strategies? Are the adjustments to their production strategies driven by economies of scale or economies of scope?"

Due to the finite nature of resources, businesses and governments need to make trade-offs between economies of scale and economies of scope. Prioritizing economies of scale means allocating more resources to expanding the production scale of existing products and industries. Prioritizing economies of scope means investing more resources in the development of new products and industries, expanding the product range, and improving the industrial chain.

For businesses, economies of scope support multi-product strategies, which helps them cope with the risks brought about by uncertainty. For GVCs, economies of scope mean that a country will use more domestically produced intermediate goods, which is in line with the current trend of localization, regionalization, and shortening of global value chains, and is conducive to ensuring supply chain security.

This article reviews the theoretical models of multi-product firms from the perspectives of erosion effect, selection effect, variable price markup, and vertical integration; it also reviews empirical literature on Chinese multi-product export firms from the perspectives of trade cost shock, input factor shock, market demand shock, and economic policy shock.

Regarding the data, Matching data between the industrial enterprise database and the China Customs enterprise database from 2000 to 2014. China's import and export data from 1982 to 2020, according to the United Nations Commodity Trade Statistics Database (UNcomtrade). The real-time updated monthly economic policy uncertainty index compiled by Baker et al. World Bank World Development Indicators (WDI) World Bank Direction of Trade Statistics (DOT) China Statistical Yearbook - Deflator Calculation

The article presents key facts. Against the backdrop of economic uncertainty, multi-product enterprises dominate China's export sector in terms of both the number of enterprises and their export value. A comparison of average enterprise age, output, size, wages, and productivity reveals that multi-product enterprises outperform single-product enterprises in terms of export performance.

Based on the core concept of economies of scope, this article constructs a simple firm decision-making model and conducts theoretical analysis. When economic policy uncertainty increases, Theorem 1 states that firms' net profits and overall sales decrease; Theorem 2 states that firms expand their product range, leading to greater benefits from economies of scope. Therefore, under the impact of economic uncertainty, firms' product strategies will shift from being primarily driven by economies of scale to being primarily driven by economies of scope.

This paper constructs a regression model for empirical analysis. The baseline regression results show that increased uncertainty in the economic policies of the two trading nations leads to a significant decrease in the scale of product exports and a significant increase in the range of products exported, while having no significant impact on the concentration of core products, at the firm's destination level.

This paper replaces Baker's indicator with Lu Shangqin and Huang Yun's China economic policy uncertainty indicator; it uses TFP (LP method) to measure labor productivity and distinguishes between heterogeneous and homogeneous enterprises; and it only retains enterprises with more than 5 product categories for robustness testing. Specifically, distinguishing between heterogeneous and homogeneous enterprises reveals that: economic policy uncertainty in the two trading countries has a greater impact on the export scale of homogeneous enterprises; economic policy uncertainty in the two trading countries has no significant impact on the destination product range of homogeneous enterprises, but a greater impact on heterogeneous export enterprises; for heterogeneous export enterprises, economic policy uncertainty in the two trading countries has a positive impact on the core product concentration at the destination level.

In the extended analysis section, the article conducts a heterogeneity analysis based on enterprise trade methods, enterprise ownership nature, and enterprise age, and concludes that economic policy uncertainty has a significant impact on processing trade enterprises, product strategies and export performance of foreign-invested enterprises, and the export scale at the destination level of young enterprises.

Increased uncertainty regarding the economic policies of trading partners will lead to a significant decrease in the size of product exports at the destination level and a significant increase in the range of products exported at the destination level. This suggests that multi-product firms will tend to weaken economies of scale and strengthen economies of scope to cope with the risks posed by economic uncertainty.

The impact of economic and policy uncertainties between trading nations on businesses varies depending on the business's trading methods, ownership structure, and duration of operation.

Fan Haichao

Professor of Economics, Fudan UniversityFan Haichao The main focus is on commenting on the empirical analysis section of the article. First, Professor Fan points out the endogeneity issue in the model; the EPU indicator at the country-time level is correlated with variables such as the target country's GDP per capita and institutional characteristics, requiring explanation for the bias caused by omitted variables. Second, Professor Fan argues that firm-level fixed utility can absorb industry-level fixed effects. Finally, Professor Fan affirms the article's discussion of the positive and negative impacts of policy uncertainty on EPU, noting its significant departure from conventional intuition and the novel positive impacts that are a pleasant surprise for readers. However, he suggests further explanation regarding the expansion of the scope of firms' export products due to uncertainty.

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国际贸易争端与全球化重构学术研讨会 2022 2022_trade

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