What ACCOUNTS FOR THE RISING SOPHISTICATION OF CHINA’S export ?

WHAT ACCOUNTS FOR THE RISING SOPHISTICATION OF CHINA’S EXPORT ?

Dadan Kardiana

Wang, Z., & Wei, S.J. (2010). In R. Feenstra, & S.J. Wei (Eds.), China’s growing role in world trade. Chicago, USA: University of Chicago Press

5 December 2013

OutlineReference Paper Introduction: Stylized Facts Research Question and Measures of

Sophistication Data & Empirical Strategy Estimation Results Master Thesis Motivation: Research Question & Why is it

Interesting? Why the answer is not obvious? Is it subsequential? Empirical Strategy & Data

Possible Contributions

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Reference Paper:Introduction

Stylized Facts on China’s Export: Sharp rise in the share of China’s Export over its GDP

within less than two decades: 5% in 1980 to 35% in 2005 accounted for more than 2 billion Dollars.

Increasing similarities of China’s export structure to that of Developed countries (ie: European Union, USA and Japan called latter as G3 countries).

Increasing overlaps between China and G3 countries can be seen in terms of product lines, Export Dissimilarity Index, and the value share of exports.

Despite this export basket similarities, China income per capita remains lag behind to G3 countries.

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Reference Paper:Research Question & Measures of Sophistication

Research Question “What are the contributing factors for

increasing similarities of China export sophistication compared to developed countries (G3 Countries)?“

Hence, the two measures of export sophistication used in the paper:a) Export Dissimilarity Index (EDI)b) The unit value of local export

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Reference Paper:Dataset and Empirical Strategy

Dataset (1996-2005) China Customs General Administration: geographic origin of

exports, policy zones designation, firms ownership, and export type.

COMTRADE UN Database: Export database of G3 countries at HS 6 digit level on manufactured goods.

Computing Export Dissimilarity Index (EDI) EDI measures the dissimilarity between Chinese export

structure with that of G3 countries. -)

Where = is the share of HS product i at 6 digit level in Chinese city r’s exports for firm type f in year t and is the share of HS product i at 6 digit level in G3 countries. The greater the value of Index, the more dissimiliar the compared export structures are.

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Breakdown of Chinese source export:6

Economic Zones

Special Economic Zones (SEZ)

Economic and Technological Development Areas (ETDA)High Technology Industry

Development Areas (HTIDA)Export Processing Zones (EPZ)

Outside Specific Economic Zones

Types of Trade

Processing Trade

Normal TradeOther Categories of

Trade


Baseline Specification Estimating the determinants of local export

structure to EDI:

Estimating determinants of local export structure through unit value:

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Reference Paper:Estimation Results

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Controlling for all firms exports structure dissimilarities in all zones at city level, with EDI as dependent variable


9Controlling for state owned firms exports dissimilarity structures with EDI as dependent

variable


10Controlling for wholly foreign own firms exports dissimilarity structures with EDI as

dependent variable


11What explains cross city differences in unit value of exports?


Cross- city differences in human capital are linked to crosscity differences in the sophistication of export structure.

High- tech zones are associated both with more sophisticated export structures and with higher unit values.

The EPZs contribute both to the rising sophistication of China’s export structure and to the rising unit values of its exports, but not significantly.

Processing trade is not generally a major factor in explaining the crosscity differences in export- structure sophistication. Firstly, more processing trade is in fact associated with a lesser resemblance to

the export structure of advanced countries. Secondly, with regard to exports originating inside of the high- tech zones,

products associated with the processing trade do not appear to overlap more with advanced countries’ exports than do those associated with non-processing trade

The export share of foreign- invested firms in a Chinese city does not appear to play a major role in explaining cross-city differences in the sophistication level of export structures.

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Reference Paper:Additional Paper

Shujin Zhu and Xiaolan Fu explained export upgrading determinants using cross country data for 171 countries (Drivers of Export Upgrading World Development Vol. 51, PP.221-233. 2013) and found that capital deepening proxied by capita labor-ratio is an important determinant of export upgrading: the higher this ratio, the more likely a country is to produce and export more sophisticated goods.

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Master Thesis :Drivers of City Complexities in China

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Research Question: What are the contributing factors of rising city complexities in China?

The main objective of the research is to analyze the determinants of city complexity (export upgrading) using a panel dataset of Chinese cities over the 1990-2012 period.

Why is it Interesting? Allow us to see trade specialization patterns and

complexity/sophistication by looking at internal variation of a developing country (cities level)

Related to the concept economic complexity (Hidalgo & Haussman, et al (2011), investigating the sources of city complexity allows us to see the productive inputs at local level, since a country’s export basket is expected to be composed of goods in which it is the most productive.

Allows us to see whether the source of export upgrading in China may differ from one type of firms to others.


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Is the answer obvious? Not perfectly obvious. Some literatures emphasized the effect of export

sophistication/city complexity (or other export upgrading measurement) towards economic growth which found a positive and significant correlation. However, few literatures explaining the contributing factors of export upgrading/sophistication within a coutnry or though countries comparison.

Zhu and Fu through cross country regression found different impact of several variables (eg. Natural resources endowment, FDI/GDP ratio, capital/labor ratio) between developing and developed countries. This research might be useful to test the internal validity of the model in Chinese case by expanding explanatory variables and using new measure of export upgrading.

Is it subsequential? Analyzing the sources of city complexity allows us to see the amount of

knowledge (know how to) that is embedded in the productive structure of an economy (this measurement excludes income per capita noises). Therefore, it can contribute as an input for policy recommendation, for instance, by focusing policy orientation towards the significant contributor of complexity (e.g infrastructure development, education, etc).


Estimation StrategyDependent Variable (City Complexity)The average complexity that of the goods that that the city exports with Revealed Comparative Advantage (RCA). Economic complexity is expressed in the composition of a country’s productive output and reflects the structures that emerge to hold and combine knowledge.

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RCA= the ratio of export share of a given product in the country’s export basket to the same share at the world level.

City complexity index , the number of products for which city c has comparative advantage. dummy variable 1 if city has comparative advantage and 0 otherwise.

For a given city c and year t complexity is calculated as the value of minus the yearly average accross n Chinese cities in the sample.


Estimation StrategyBasic Specification

The estimation follows Zhu & Fu model with modification based on the availability of the data Lrcapl represent log capital labor ratio, lrlandp represents land area per capita, lhumcap human capital in the city’s labor force, Infr the average value of infrastructures of the city (road, electricity and water supply), lFDI FDI inflows over GDP and lPop represents population in the city.

DatasetCity level data composed of 221 Chinese cities for the period 1990-2012, taken from: (1). China Data Online for macro data (2) China customs data for city’s export and import

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= +++++ + +++


Possible Contribution1. Using City Complexity as the measurement of export upgrading

The benchmark paper of Wang and Wei put export dissimilarity structure and export sophistication as the dependent variable. While the explanatory variables are focused on the share of total city exports based on specialized and non-specialized zones. This research puts city complexity as the dependent variable that basically reflects the average complexity of goods exported by each city with revealed competitive advantage.

2. Expanded YearThe benchmark paper’s investigation starts from 1995 to 2005. This paper attempts to cover broader year from 1997 to 2012.

3. Controlling for Infrastructure variables and Possible Instrumental VariableEstimating the effect of the Chinese infrastructure variables (the average value of total road, electricity and water supply) towards city complexity index. Some articles have controlled for infrastructure development in explaining economic growth disparities in China (eg. Demurger (2001)), and found that the results indicate that transport facilities are a key differentiating factor in explaining the growth gap and point to the role of telecommunication in reducing the burden of isolation.

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Thank you

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What ACCOUNTS FOR THE RISING SOPHISTICATION OF CHINA’S export ?