Mechanisms and Policy Responses to Changes in China's Domestic Demand Affecting Exports: An Enterprise Dynamics Perspective
How do changes in domestic demand affect exports? There is a lack of research that addresses this question from the perspective of enterprise dynamics, one of the key features of a market economy, and the credibility of the conclusions is weak because the export-determining equations on which they are based are derived from a simple set-up. As a result, existing studies lack scientific theoretical guidance and empirical evidence at the micro level to answer important practical questions, such as ‘Is there a “domestic demand pressure hypothesis” in China’. While measuring the contribution of firm turnover and growth to export changes, this project expands the theory of heterogeneous trade by relaxing the assumption of constant marginal cost and introducing interconnections between domestic and foreign markets, and builds a rigorous theoretical system to systematically analyse the export determination equations of internal and external demand and other variables. On this basis, we empirically estimate China's export determination equation at the firm and industry levels; then, controlling for other variables, we focus on the impact of changes in domestic demand on the output weight effect, export weight effect, entry effect and exit effect from the dynamics of different forms of firms through the mechanisms of factor constraints and factor efficiency. Finally, in the light of the existing policy system, it puts forward targeted policy recommendations that can ‘coordinate the expansion of domestic and external demand’ and ‘accelerate the formation of a new situation in which economic growth is driven by the coordination of consumption, investment and exports’.
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