Liberalization for services foreign direct investment and product mix adjustment: Evidence from Chinese exporting firms

This article is the first to explore how manufacturing firms adjust their export product mix in response to services liberalization. We focus on the liberalization of services foreign direct investment (FDI) in destination (importing) countries. Our analysis of detailed customs transaction data from China, finds a promotion effect of services FDI liberalization on export diversification of manufactured goods, which is mainly revealed by an increase in export value, variation in the number of product varieties, the dispersion ratio across exported products, and a decrease in the export skewness ratio. However, this diversification-promotion effect is only found in developing countries, but not present in developed countries. Our study suggests that services liberalization incurred in importing countries play an important role in promoting export scale and diversification.