Global Production Networks and the People's Republic of China's Processing Trade
AbstractThis paper unveils a systematic pattern in the People's Republic of China's (PRC) processing trade. In a cross-section of the PRC's provinces, the average distance traveled by processing imports (import distance) is negatively correlated with the average distance traveled by processing exports (export distance). To explain this pattern, we set up a three-country industry-equilibrium model in which heterogeneous firms from two advanced economies, East and West, sell their products in each other's markets. Each firm can use two modes to serve the foreign market. A firm can directly export its products from its home country. Alternatively, it can indirectly export to the foreign market by assembling its product in a third low-cost economy, PRC, which is located in the vicinity of East. Our model established two theoretical predictions relating the PRC's geographical location to its processing trade patterns. First, the PRC's processing exports are negatively affected by both an increase in import distance and an increase in export distance. Second, the PRC's processing exports to East Asian economies are more sensitive to export distance and less sensitive to import distance than its processing exports to non-Asian economies. We found empirical support for both predictions.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 175.
Length: 28 pages
Date of creation: 10 Dec 2009
Date of revision:
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location trade costs prc; processing trade export platform prc; fdi prc;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-22 (All new papers)
- NEP-INT-2010-05-22 (International Trade)
- NEP-SEA-2010-05-22 (South East Asia)
- NEP-TRA-2010-05-22 (Transition Economics)
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- Bown, Chad P. & McCulloch, Rachel, 2009.
"U.S.-Japan and U.S.-China trade conflict: Export growth, reciprocity, and the international trading system,"
Journal of Asian Economics,
Elsevier, vol. 20(6), pages 669-687, November.
- Bown, Chad P. & McCulloch, Rachel, 2009. "U.S.-Japan and U.S.-China trade conflict : export growth, reciprocity, and the international trading system," Policy Research Working Paper Series 5102, The World Bank.
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