Geographic Integration and Firm Export: Evidence from China

Abstract
We provide new evidence on the role of domestic geographic integration in a country’s integration to the international market. The geographic concentration of exporters may reduce trade frictions for other potential exporters, for example, through learning by doing or establishing reliable distribution channels. We examine the existence of such spillover effects in the export market by leveraging a quasi-natural experiment: The expansion of China’s high-speed rail (HSR) provides plausibly exogenous variation in the extent of (effective) geographic integration among Chinese exporters. From a simple model of export behavior, we derive the empirical specification to examine how export performance responds to the improved geographic integration. The analysis reveals strong evidence that the improved within-sector integration of exporters positively impacts a firm’s export performance, such as sales, number of export markets, and product quality. We also provide evidence consistent with that an HSR connection strengthens knowledge spillovers among exporters to overcome informal trade barriers when accessing foreign markets.