One third of Chinese exporters sell more than ninety percent of their production abroad. We argue that this distinctive pattern is attributable to a wide range of subsidies that provide incentives to these "pure exporters". We propose a heterogeneous firm model in which firms exporting all their...

China's government provides a wide range of incentives to encourage firms to produce almost exclusively for the foreign market. The authors analyse the impact of these 'pure exporter subsidies' on both the Chinese economy and the rest of the world - and what would happen if they were removed.

We provide a general characterization of which firms will select alternative ways of serving a market. If and only if firms' maximum profits are supermodular in production and marketaccess costs, more efficient firms will select into the activity with lower market-access costs. Our result...