Imitating to export

© 2018 Elsevier Inc. China started to establish export processing zones (EPZs) in 2000 to better manage foreign processing business. The cluster of export processing business inside the EPZs provides an opportunity for neighboring Chinese firms to observe. Chinese firms quickly imitate foreign exporters in both export and import patterns. Exports of the exact products shipped from EPZs immediately increase throughout the province, with the largest gains in the city containing the EPZ, and the next largest in the cities adjacent to the EPZ. Chinese firms also import the same equipment imported by firms in EPZs, suggesting that they imitate foreign technology. Furthermore, we find that Chinese firms who imitate experience modest gains in profitability and productivity. We conclude that a key ingredient of China's success in trade has been its ability to attract foreign capital and subsequently imitate them.