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FDI Liberalization as a Source of Comparative Advantage in China

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  • Sebastian Claro

Abstract

Two features of China's trade patterns suggest that elements beyond factor abundance explain its export performance. The high penetration in world markets of labor-intensive products has been accompanied by: (i) a high share in exports of productivity-advanced foreign-invested enterprises (FIEs) and (ii) a high penetration of FIEs in labor-intensive sectors. We show that FDI liberalization endogenously introduces Ricardian features to an otherwise standard endowment-based trade model, strengthening China's natural comparative advantage in labor-intensive products. We discuss how capital accumulation, productivity growth, rural-urban migration, incentives for foreign investment, and distortions in financial markets affect this bias. Copyright © 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Sebastian Claro, 2009. "FDI Liberalization as a Source of Comparative Advantage in China," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 740-753, November.
  • Handle: RePEc:bla:rdevec:v:13:y:2009:i:4:p:740-753
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    References listed on IDEAS

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    1. Daniel H. Rosen, 1999. "Behind the Open Door: Foreign Enterprises in the Chinese Marketplace," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 23.
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    Cited by:

    1. Mitchell H. Kellman & Yochanan Shachmurove, 2011. "Herfindahl-Hirschman Meets International Trade and Development Theories," Working Papers 50, Department of Applied Econometrics, Warsaw School of Economics.
    2. repec:taf:rjapxx:v:21:y:2016:i:3:p:325-338 is not listed on IDEAS
    3. Mitchell H. Kellman & Yochanan Shachmurove, 2010. "Adam Smith Meets an Index of Specialization in International Trade," PIER Working Paper Archive 10-029, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    4. repec:spr:manint:v:54:y:2014:i:2:d:10.1007_s11575-013-0195-y is not listed on IDEAS
    5. Roberto Álvarez & Sebastián Claro, 2007. "On the Sources of China’s Export Growth," Working Papers Central Bank of Chile 426, Central Bank of Chile.
    6. Qun Bao & Min Shao & Ligang Song, 2014. "Special Issue: Issues in Asia. Guest Editor: Laixun Zhao," Review of Development Economics, Wiley Blackwell, vol. 18(2), pages 218-230, May.
    7. repec:eee:quaeco:v:65:y:2017:i:c:p:107-113 is not listed on IDEAS

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