Duty Drawback and Export Promotion in China

The Chinese government has actively tried to promote export. Her export promotion measures have included duty drawbacks, which are expected to lower the cost of imported inputs and to increase the exporters' competitiveness. This paper examines the effectiveness of the duty drawback system in the promotion of export in China considering export supply and export demand. The unit root test shows that all concerned variables are integrated of order one. The existence of a long run equilibrium relationship among the concerned variables is examined by Pesaran and Shin's autoregressive distributed lags model. Since the cointegration tests reveal that there does not exist any long run equilibrium relationship, the ordinary least squares estimation results using the first differenced data are reported. The regression results show that duty drawback is not significant in export promotion, which might arise from inefficiencies such as the false reporting practices.