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Component Trade and China?s Global Economic Integration

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  • Li, Kunwang
  • Song, Ligang
  • Zhao, Xingjun
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    Abstract

    China?s engagement in the so-called international fragmentation of production ? namely ?cross-border dispersion of component production/assembly within vertically integrated manufacturing industries? ? has become an increasingly important form of its economic integration into the regional as well as the global economy. The paper presents the recent trend of trade in parts and components between China and its main trading partners. Applying an adjusted gravity modelling method, the paper explores how China?s pattern of trade in parts and components is being determined. The paper found that China?s rapid economic growth, increasing market size and economies of scale, foreign direct investment and infrastructure development including transportation and telecommunications are important factors in explaining China?s rapid increase of bilateral trade in parts and components with its trading partners. The paper also found that the spatial distance and transportation costs have significant negative impacts on China?s trade of parts and components suggesting that the reduction in transportation costs by technological innovation and investment could enhance trade in parts and components, and thereby deepen the process of international specialization involving China and its main trading partners. The paper argues that given the prospects of the rapid growth of the Chinese economy, its current and planned massive investments in R&D and in infrastructure, its continual policies in attracting FDI and its rapid move towards liberalizing its services sectors including its financial sectors, the scope for China and its trading partners to benefit from the process of international fragmentation of production is tremendous.

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    File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2008/rp2008-101.pdf
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    Bibliographic Info

    Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number RP2008/101.

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    Length: 26 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:unu:wpaper:rp2008-101

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    Keywords: component trade; international fragmentation of production; gravity model;

    References

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    1. Jones, Ronald W. & Kierzkowski, Henryk, 2005. "International fragmentation and the new economic geography," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 1-10, March.
    2. Jones, Ronald & Kierzkowski, Henryk & Lurong, Chen, 2005. "What does evidence tell us about fragmentation and outsourcing?," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 305-316.
    3. Arndt, Sven W. & Kierzkowski, Henryk (ed.), 2001. "Fragmentation: New Production Patterns in the World Economy," OUP Catalogue, Oxford University Press, number 9780199243310.
    4. Hartmut Egger & Peter Egger, 2005. "The Determinants of EU Processing Trade," The World Economy, Wiley Blackwell, vol. 28(2), pages 147-168, 02.
    5. Alessia Amighini, 2004. "China in the international fragmentation of production: Evidence from the ICT industry," KITeS Working Papers 151, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jan 2004.
    6. Guillaume Gaulier & Françoise Lemoine & Deniz Ünal-Kesenci, 2005. "China’s Integration in East Asia: Production Sharing, FDI & High-Tech Trade," Working Papers 2005-09, CEPII research center.
    7. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    8. Prema-chandra Athukorala, 2006. "Multinational Production Networks and the New Geo-economic Division of Labour in the Pacific Rim," Departmental Working Papers 2006-09, The Australian National University, Arndt-Corden Department of Economics.
    9. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    10. Ronald W. Jones & Sugata Marjit, 2001. "The Role of International Fragmentation in the Development Process," American Economic Review, American Economic Association, vol. 91(2), pages 363-366, May.
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