Rail's efficiency gain by separating affiliated businesses and its impact on product mix of export by rail

This paper investigates the impact of separating the affiliated businesses from rail operations and the associated efficiency gain on firms' exporting decisions by rail. First, an economic model was built to analytically show that an efficiency improvement in rail operations would increase the firm's product variety but decreases the skewness of export by rail. The paper then utilized China's rail reform to separate the affiliated businesses from the rail sector in 2003 as a quasi-natural experiment and adopted the difference-in-differences (DID) method to empirically verify and quantify the analytical findings. Specifically, it is found the reform to separate the affiliated businesses significantly improved the efficiency of China's rail operations. The resultant efficiency gain then encouraged firms to export by rail, with more variety of export products and higher value. More importantly, the firm's skewness of export by rail has also been reduced. The relevant policy implications have also been provided.