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FDI Liberalization as a Source of Comparative Advantage in China

  • Sebastian Claro

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.

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Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 13 (2009)
Issue (Month): 4 (November)
Pages: 740-753

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Handle: RePEc:bla:rdevec:v:13:y:2009:i:4:p:740-753
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