“Managing Trade: Evidence from China and the US” by Kalina Manova
University of Oxford
John Van Reenen
We present a heterogeneous-firm model in which management ability increases both production efficiency and product quality. In particular, better managed firms use more sophisticated inputs and assembly technologies to more efficiently produce goods of higher quality. Combining six micro-datasets on management practices, production and trade in Chinese and American firms, we find support for the model's predictions across both countries. First, better managed firms are more likely to export, sell more products to more destination countries, and earn higher export revenues and profits. Second, better managed exporters have higher prices, higher quality, and lower quality-adjusted prices. They also source more imported inputs, a wider range of inputs, more expensive inputs, and more inputs from advanced economies. The structural estimates from our model suggest that management is important for improving productive efficiency in both countries, but it matters more for raising quality in China than in the US. Poor management practices may thus hinder trade, growth and entrepreneurship in developing countries.