Topic：Trade Liberalization and Domestic Vertical Integration: Evidence from China

Speaker：Dr LIU Qing , University Of International Business and Economics

Site：EMS B228

Time：9:30am,May 25,2018

Abstract：In this study we examine the effects of trade liberalization on domestic mergers and acquisitions (M&As) in China. In particular, we focus on domestic backward vertical integrations in which a domestic upstream firm (target) is acquired by a domestic downstream firm. Our analysis takes China’s accession to the WTO (2001) as a quasi-natural experiment for trade liberalization. We find that a decrease in tariffs on the target industry’s outputs reduces vertical integrations, but a decrease in tariffs on the target industry’s inputs increases vertical integrations. The result is obtained using the difference-in-differences technique and is robust to various specifications of the model and measurement. We build a hold-up model with an upstream supplier and a downstream buyer to provide insights to the empirical finding that the existence of underinvestment is the key to understanding the effects of tariff reductions on firms’ organizational choices.