Domestic trade costs, input sourcing, and the value-added content of exports: Evidence from China's inland waterways

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Please join us for this upcoming ACDE Seminar. China's domestic value added ratio DVAR in exports has risen despite deeper integration into global value chains, a pattern at odds with most developing economies. We examine whether improvements in domestic inland waterway transportation infrastructure can explain this divergence. We develop a theoretical framework that identifies two channels through which lower inland trade costs raise DVAR: a relative price channel favoring domestic intermediates and an extensive margin channel that expands access to domestic suppliers. Using firm level data from 2000 to 2013 and a difference in differences design that exploits the Three Gorges Dam's staged construction as a quasi natural experiment, we find that improved Yangtze River…

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