FIRM PRODUCTIVITY AND SALES DESTINATIONS: EVIDENCE FROM WITHIN CHINA

This paper builds on and extends the literature on the linkage between firm productivity and their export destinations to study the productivity of Chinese firms and their sales destinations in other provinces within China. Moving the study from international markets to domestic markets conveniently avoids the hard to control heterogeneity across different destination markets in international trade, as provincial markets within China are less heterogeneous than international markets but segmented by Chinese provincial borders. The paper explicitly controls the fact that many firms only sell in their home provinces by using the zero-inflated negative binomial method. It finds that firms with higher productivity tend to sell in other provincial markets, and more productive firms enter more provincial markets. The results are robust. (JEL F15, D21, D24)