Reducing administrative barriers: Evidence from China's county-to-district reform on export product quality

Abstract

High administrative barriers can increase the flow costs of factor resources, reduce the efficiency of resource allocation, and potentially impede China's transition towards a high-quality development stage. This paper uses China's county-to-district reform as a quasi-natural experiment to examine how reducing inter-regional administrative barriers influences firms' product quality. Based on panel data from 2000 to 2013, which encompasses Chinese industrial enterprises, customs, and patents, the study finds that the county-to-district reform can significantly improve the quality of export products of firms within the reform counties. Further exploration of the mechanisms reveals that, on the one hand, the reform forces firms to concentrate more on producing competitive, high-quality products due to the tightening of preferential policies and increasing financial constraints. On the other hand, the reform can increase firm agglomeration, which encourages firms to innovate through knowledge spillovers and fiercer competition, thus enhancing the quality of export products. In addition, the reform improves the administrative efficiency of local governments in handling firms' export activities and reduces transaction costs for firms, which improves their export product quality. The results on firm heterogeneity show that the effect of this reform on quality upgrading is particularly evident in non-state-owned enterprises, high-efficiency enterprises, and those in the less marketized regions.