How does the reform of rules of origin affect firm performance in importing countries?

Abstract

AbstractThis study empirically examines the economic impact of reforms on Japan's generalised system of preferences regarding firm performance. Specifically, we consider the relaxation of the rules of origin (RoOs) for knitted apparel in 2011 and 2015. We conducted a difference‐in‐differences analysis by defining the knitted apparel industry as the treatment group and the woven apparel industry as the control group. First, we demonstrate that Japan's total imports of knitted apparel products did not experience a greater change than those of woven apparel products. However, imports of knitted apparel products from the least developed countries (LDCs) have increased significantly. Second, on average, the two RoO reforms did not significantly change the sales value of knitted apparel producers. Third, we explore the heterogeneous effects across product price ranges because plants producing relatively low‐price products may be affected largely by the increase in the import values of inexpensive apparel products from LDCs. As a result, we find significant results for knitted apparel producers in the low‐price range. While the first relaxation, in 2011, reduced their production quantity and raised unit prices, the second relaxation, in 2015, reduced sales value by reducing production quantity.