What is behind the recent dramatic reductions in photovoltaic prices? The role of china

China is the largest solar photovoltaic (PV) producer in the world, with more than 50% of the world?s cell and module production. PV prices have experienced a sharp drop since 2010, reducing manufacturers margins and forcing a number of U.S. and European PV firms to declare bankruptcy. The purpose of this paper is to explore the role played by China in these recent PV dynamics with particular reference to the role of incremental innovation vis-a-vis other factors like scale, vertical integration, cheap labour, favourable governmental policies or market demand/supply dynamics. A framework for analysis based on the "technological capability" (TC) literature combines insights from a survey conducted in China in 2005 with a recent review of the literature and interviews undertaken in 2012 with international PV experts. The paper shows that cheap labour has a marginal role in reducing the cost of the Chinese PV products. Technological innovation, economies of scale, vertical integration and production capacity expansion have been used as strategic tools to reduce costs and gain market shares. A favourable industrial policy, boosted by credit availability, has also been a driver in the growth of the Chinese PV sector and competitiveness.