Administrative decentralisation strategy and upgrading firm exports: empirical evidence from China’s ‘counties power expansion’ reform

The quality of exported products is a key indicator of a country’s firms’ international competitiveness. Using data from Chinese industrial firms and customs from 2000 to 2012, this paper examines the impact of the ‘counties power expansion’ reform on the quality of exported products. The findings indicate that as county-level governments gain broader administrative powers, they encounter increased pressure for economic growth, leading to two main outcomes: firstly, county-level governments intensify tax collection efforts on firms, increasing their burdens and prompting firms to focus more on increasing production investments rather than on product development, thereby reducing the proportion of new product output; secondly, these governments attract a large number of firms by improving the business environment, which boosts firms’ operating revenue. While this stimulates firms to expand production scale, it fails to enhance the proportion of high-quality products. This phenomenon is particularly evident in non-state-owned enterprises, labour-intensive industries, and firms exporting to underdeveloped countries or regions. Additionally, the simultaneous decentralisation of administrative and fiscal powers is crucial for effectively stimulating county-level government support for upgrading firm exports.