3 SPRING 2024 NO.82 / THOUGHT LEADERSHIP BRIEF ASSESSMENT The overcapacity elimination policy significantly affected the export values of machines and corresponding sectors in China. We observe a significant 6.33% increase in the export of machines and their corresponding sectors when targeted by the overcapacity elimination policy at the city-commodity level. However, it did not significantly impact export values in the downstream sector. The overcapacity elimination policy imposes restrictions on the use of old machines in the regulated sector. As a result, firms in the machines sector are compelled to find alternative avenues for disposing of these machines. Exporting them to Africa becomes an attractive option for these firms, as it allows them to recoup some value from the machines while complying with the policy. This can occur through direct exports by the firms themselves or through intermediaries such as traders who specialize in exporting old machinery. Consequently, the overcapacity elimination policy may lead to a significant increase in the export of machines and their corresponding sectors to African countries. In Africa, we observed significant increases in output and productivity in the downstream sector, indicating enhanced production capabilities. However, in the local machinery sector, both output and productivity decreased, suggesting that imported machinery displaced domestic production. We further find that machinery imports lead to increased productivity and production in downstream industries, while wages and employment remain unchanged. However, in the machinery sector itself, the import of machines does not result in significant changes in wages, production, or employment. Instead, it even leads to a decrease in productivity in the machinery sector. Specifically, high GDP countries experience a drop in wages, productivity, and production in the machinery sector when machinery imports from China occur. In contrast, low GDP countries do not experience significant changes in the performance of their machinery sector. Ultimately, the study finds that only high-GDP countries are significantly affected by this shock of machinery imports from China. Using the firm level data, we conduct the subgroup analysis focusing on downstream exporters and non-exporters. Our analysis reveals that the policy-induced shock has a significant impact on downstream exporters, leading to increases in wages, productivity, and production levels. However, we do not observe any significant change in overall employment for this subgroup. The analysis for non-exporters shows no significant change in local employment and foreign employment. However, the policy-induced import is associated with an increase in fixed assets and electricity usage for non-exporters. Overall, our findings suggest that the policy-induced shock has different effects on various outcomes, with significant improvements observed for downstream exporters but limited changes for non-exporters. Figure 2 illustrates the significant and heterogeneous impact of machinery transfers from China on downstream sectors in Africa. The orange lines represent the impact on African exporters, while the black lines represent the impact on non-exporters, typically smaller firms. The machinery transfers have a positive impact on African exporters, as they are more likely to have access to and benefit from these transfers. In contrast, the machinery transfers have no discernible Figure 2. logWage logWage logProductivity logProductivity logProduction logProduction logEmployment logEmployment Estimate and 95% Conf. Int. -0.1 -0.0 0.1 0.2 Estimate and 95% Conf. Int. loglocal Employment loglocal Employment logForeign Employment logForeign Employment logFixed Asset logFixed Asset logElectricity logElectricity -0.1 -0.0 0.1 0.2 0.3 Firm Type Exporter non-Exporter
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