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Why does China protect its labour-intensive industries more? -super-

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  • Sebastián Claro

Abstract

China's tariff structure favours labour-intensive sectors, and this is at odds with traditional theory of comparative advantage. The paper argues that tariffs in China are a mechanism for protecting technology-backward domestic - especially state-owned enterprises (SOEs) from competition technology-advanced foreign enterprises producing in China. With relatively integrated labour markets and cross-firm technology differences, SOEs' subsistence is supported by subsidized credit and limited access of foreign firms' local production to tariff-protected domestic markets. Labour market integration and capital subsidies increase the relative cost of labour in SOEs compared to their foreign competitors, hurting more domestic firms in industries that use labour more intensively. Restrictions to FIEs' (foreign-invested enterprises) access to tariff-protected product markets, which protect more labour-intensive industries, compensate for the greater cost disadvantage of SOEs in labour-intensive sectors. Copyright (c) The European Bank for Reconstruction and Development, 2005.

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Bibliographic Info

Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 14 (2006)
Issue (Month): 2 (04)
Pages: 289-319

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Handle: RePEc:bla:etrans:v:14:y:2006:i:2:p:289-319

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Cited by:
  1. Sebastián Claro, 2005. "How Uncompetitive is the State-Owned Industrial Sector in China," Documentos de Trabajo 305, Instituto de Economia. Pontificia Universidad Católica de Chile..
  2. Claro, Sebastian, 2008. "FDI Liberalization as a Source of Comparative Advantage in China," Working Paper Series RP2008/91, World Institute for Development Economic Research (UNU-WIDER).

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