arXiv subjects

Sizhong Sun

Publications and source records attributed to Sizhong Sun.

3 recordsLinked to original sources

arXiv2026

Trade Liberalization, Export and Product Innovation

This paper studies firms' optimal response to a trade liberalization shock in terms of export and product innovation both theoretically and empirically. We find that trade liberalization, namely China's WTO accession, reduces iceberg trade cost by around 13%, thus promoting export participation. Subsequently, it affects firms' product innovation through both contemporaneous and dynamic channels. First, it incentivizes firms to innovate as the marginal benefit of innovation for exporting firms is higher than that for non-exporting firms. Second, as a firm starts to innovate, it predicts to have a higher probability of moving to a better productivity state and can save the entry cost of innovation in the future, resulting in additional dynamic benefits which are quantitatively substantial in our estimations. Such an innovation-promotion effect is an unintended consequence of trade liberalization.

econ.GN↗

arXiv2026

Estimating Demand for a New Product

This paper develops an approach for estimating demand for a new product. Taking willingness to pay (WTP) as primitive, it establishes a general and yet analytically simple demand function, and proposes an estimation procedure that consistently recovers the underlying demand function from the WTP data. Monte Carlo simulations find the estimation procedure works well in identifying the demand function. This approach complements existing methods of demand estimation, and can be applied both within and outside academia, for example in teaching economics, for a business to launch new products, and for policymakers to conduct non-market valuation.

econ.EM↗

arXiv2025

The Impact of a Raw Material Import Ban on Vertical Outward FDI: Theoretical Insights and Quasi-Experimental Evidence

This paper examines how adverse supply-side shocks in domestic input markets influence firms' vertical outward foreign direct investment (OFDI) decisions. While the theoretical basis for cost-driven OFDI is well established, empirical evidence on the causal mechanisms remains limited. We develop a framework in which input cost shocks raise unit production costs, but firms undertake vertical OFDI only when shocks are sufficiently severe or when baseline costs are already high. Firm heterogeneity leads to a sorting pattern, whereby more productive firms are more likely to invest abroad. To test this mechanism, we exploit China's 2017 waste paper import ban as an exogenous shock and leverage a distinctive feature of the paper product industry's supply chain. Using a difference-in-differences strategy and firm-level data from 2000 to 2023, we find that the policy shock increased the probability of vertical OFDI by approximately 16% in the post-policy period relative to a control group. These results provide robust evidence that firms respond to domestic input shocks by reallocating production across borders, highlighting vertical OFDI as a strategic response to supply-side disruptions. The findings contribute to understanding the micro-foundations of global production decisions in the face of input market volatility.

econ.GN↗