Does services trade reform improve supply chain efficiency? Evidence from Chinese firms
Description
Developing countries often face high inventories and weak operating efficiency because producer-service supply is insufficient and services markets remain subject to institutional barriers. This study examines whether institutional opening in services trade can relax these constraints and improve firm-level supply chain efficiency. Using China's pilot programme for the innovative development of services trade as a quasi-natural experiment and listed-firm data, we identify the mechanisms through which the policy affects inventory decisions. The results show that the pilot programme significantly reduces non-finished-goods inventories and improves supply chain efficiency. The results remain robust to alternative difference-in-differences estimators, entropy balancing, controls for contemporaneous policy shocks, alternative outcome measures and inference methods. Mechanism analyses provide evidence consistent with three connected channels: improved upstream procurement coordination, accelerated digital transformation and greater customer diversification. Heterogeneity analysis further shows that the effect is greater for firms with weaker pre-policy growth capacity and for those with higher pre-policy productivity. This study provides micro-level causal evidence on how institutional innovation in services trade reduces precautionary inventories and strengthens supply chain efficiency.