How export firms respond to the public procurement localization of destination countries: evidence from China

Public procurement has increasingly been used by many countries as a form of trade protection. This study is the first to examine the response of export firms to public procurement localization (PPL). Utilizing data from the Global Trade Alert database and detailed micro-data of Chinese export firms, we reveal that PPL induces significant trade diversion effects at the firm level. Specifically, it leads to a reduction in the continuous export value of affected products, though it does not result in an immediate product market exit for these firms. To mitigate the demand shocks caused by PPL, firms respond by reducing the variety of their exported products.