Essays on Globalization and Firms

The prominent role firms play in the global market makes it crucial to understand how firms respond to changes in trade policies and global market structures. The era of hyper-globalization and recent trends of decoupling emphasize this necessity, particularly in terms of their impact on overall welfare. With this general background in mind, this thesis studies the impact of international trade and trade policies on firm behavior and market outcomes, mostly within the context of China. The availability of granular firm-level data enables me to integrate reduced-form analysis with quantitative exercises to provide a comprehensive view of the subject. The first chapter documents how trade facilitation, which simplifies the administrative procedures and enhances the information exchange in international trade, brings pro-competitive effects and generates welfare implications from both increases in trade and improvement in allocation efficiency. Using the staggered roll-out of the \textit{Single Window} reform in China as a quasi-experiment, we show that the reform boosts aggregate exports, encourages entry into exporting, lowers the market share of pre-dominant firms, and shrinks the dispersion of marginal revenue product of capital and labor. Building on these findings, we develop a model featuring variable markup and per-shipment fixed cost to quantify the overall welfare gains from this unilateral, trade-promoting, non-tariff policy instrument. Chapter 2 continues to examine the impact of other institutional features on firms' exporting behaviour. Specifically, the mandated transparency at Customs enhances tax authorities' capabilities for scrutinizing exporting firms, creating an implicit barrier to global market participation. This is particularly the case under state-capacity constraints. Leveraging an institutional reform in China that introduced exogenous variations in tax enforcement practices for two sets of comparable firms, I find that such bias leads to under-performance in export market, which is equivalent to a up to a 7.2\% tariff increase. The effect mainly operates through the product portfolio margin, which is consistent with the tax evasion literature that firms tend to hide the whole product line to evade taxes. In the last chapter, we move beyond specific policy tools and aims to exploit the conditions under which feasible policy instruments, namely non-discriminatory corporate taxes and subsidies, can be used to correct market inefficiencies and increase overall welfare in the economy in the context of variable markups. Theoretical derivation suggests that constant absolute pass-through (CAPT), defined as the first derivative of the price of the primary good in a firm with respect to its marginal cost, serves as the key underlying condition. Preliminary empirical test examining the heterogeneous pricing strategies of Chinese exporters by productivity confirms this condition. The conclusions of all three chapters are of great policy implications, not only for China but also more broadly for developing countries for which participating in the global market is one of the most important growth engines. The details will be displayed further in each chapter.