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Vertical and Horizontal Dimensions of Trade Liberalization

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  • Sebastián Claro

    ()
    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

FDI introduces competition between foreign and domestic firms at the factor market level. If the latter are technology backward, cost pressures render them uncompetitive, and absolute advantage determine the pattern of foreign and domestic firms’ production. To compensate for technology deficiencies, countries introduce distortions in product and factor markets. Trade liberalization, i.e., the removal of these distortions, have important implications for production and employment patterns, wages and capital flows. I provide evidence that China’s policies to protect domestic -specially state-owned- firms match the model’s prediction on the structure of interventions.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 265.

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Date of creation: 2004
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Publication status: Published as "Why Does China Protect its Labour-Intensive Industries More?", The Economics of Transition, 14 (2): 289-319, 2006.
Handle: RePEc:ioe:doctra:265

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Keywords: Trade integration; tariffs; capital subsidies; FDI; technology transfers; China;

References

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  1. Sebastián Claro, 2003. "A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(120), pages 239-257.
  2. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers.
  3. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
  4. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  5. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  6. Michael Funke & Jörg Rahn, 2002. "How efficient is the East German economy? An exploration with microdata," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 201-223, March.
  7. Hans-Werner Sinn, 2000. "Germany's Economic Unification: An Assessment after Ten Years," NBER Working Papers 7586, National Bureau of Economic Research, Inc.
  8. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
  9. Hans-Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
  10. Loren Brandt & Xiaodong Zhu, 2000. "Redistribution in a Decentralized Economy: Growth and Inflation in China under Reform," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 422-451, April.
  11. Branstetter, Lee G. & Feenstra, Robert C., 2002. "Trade and foreign direct investment in China: a political economy approach," Journal of International Economics, Elsevier, vol. 58(2), pages 335-358, December.
  12. Michael Funke & Felix FitzRoy, 1995. "Skills, Wages, and Employment in East and West Germany," IMF Working Papers 95/4, International Monetary Fund.
  13. Françoise Lemoine, 2000. "FDI and the Opening Up of China's Economy," Working Papers 2000-11, CEPII research center.
  14. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 873-92, August.
  15. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
  16. Groves, Theodore, et al, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 183-209, February.
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