IDEAS home Printed from https://ideas.repec.org/p/ags/pugtwp/330941.html
   My bibliography  Save this paper

Assessing the Impact of China’s WTO Accession on Foreign Ownership

Author

Listed:
  • Walmsley, Terrie L.
  • Hertel, Thomas W.
  • Ianchovichina, Elena

Abstract

During the 1990s, rapid growth in China was accompanied by strong growth in foreign direct investment (FDI). FDI continued to grow until 1997 when it leveled off. Overall total investment fell as direct investment leveled off and portfolio investment fell after 1997. In terms of total foreign investment, it is clear that in 1998, under the shadow of the East Asian Crisis, China fell out of favour. Attempts by China to join the World Trade Organisation (WTO) have recently progressed to the final stages with the signing of agreements with the United States, Europe and Japan. It is hoped that China’s accession to the WTO will accelerate changes in China towards a market economy and attract foreign investment back to China. In this paper we explore the implications of WTO accession for market rates of return and hence on investment in China using the dynamic GTAP model. The dynamic GTAP model is applied to an 11-region by 13-commodity aggregation of the GTAP database, supplemented with foreign income data. The paper also takes into account duty drawbacks and examines the effect of replacing lost tariff revenue resulting from the reduction of tariffs. Data suggest that duty drawbacks apply to approximately 60% of goods imported by China. This effectively reduces the average tariff rate applied to imported commodities and hence, if not taken into account, the effects of reducing the tariff rates under the WTO agreement may be significantly overestimated. Moreover, in countries in which the tax systems are not highly developed, tariffs are an important source of government revenue. In China accession to the WTO, and the reduction in tariffs which accompanies it, will have an important affect on the Governments tax receipts. As a result this tariff revenue may have to be replaced with other alternative taxes. The affects of this on China and on investment are investigated in this paper. It is found that the effect of accession on interest rates can play an important role in enhancing China’s attractiveness as a destination for foreign investment. This increase in the attractiveness of China as a destination for foreign capital can, however, be severely curtailed if China chooses to follow a policy of replacing lost tariff revenue with additional income taxes.

Suggested Citation

  • Walmsley, Terrie L. & Hertel, Thomas W. & Ianchovichina, Elena, 2001. "Assessing the Impact of China’s WTO Accession on Foreign Ownership," Conference papers 330941, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:330941
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/330941/files/3505.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brown, Drusilla K. & Deardorff, Alan V. & Stern, Robert M., 1996. "Computational Analysis of the Economic Effects of an East Asian Preferential Trading Bloc," Journal of the Japanese and International Economies, Elsevier, vol. 10(1), pages 37-70, March.
    2. repec:fth:michin:261 is not listed on IDEAS
    3. Krishna, Kala & Erzan, Refik & Tan, Ling Hui, 1994. "Rent Sharing in the Multi-fibre Arrangement: Theory and Evidence from U.S. Apparel Imports from Hong Kong," Review of International Economics, Wiley Blackwell, vol. 2(1), pages 62-73, February.
    4. Brown, Drusilla K. & Deardorff, Alan V. & Stern, Robert M., 1995. "Expanding NAFTA: Economic effects of accession of Chile and other major South American nations," The North American Journal of Economics and Finance, Elsevier, vol. 6(2), pages 149-170.
    5. Deardorff, A.V. & Stern, R.M., 1990. ""Introduction" To Computational Analysis Of Global Trading Arrangements," Working Papers 261, Research Seminar in International Economics, University of Michigan.
    6. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    7. Kathuria, Sanjay & Bhardwaj, Anjali, 1998. "Export quotas and policy constraints in the Indian textile and garment industries," Policy Research Working Paper Series 2012, The World Bank.
    8. Martin,Will & Winters,L. Alan (ed.), 1996. "The Uruguay Round and the Developing Countries," Cambridge Books, Cambridge University Press, number 9780521586016, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hiro Lee & David Roland-Holst & Dominique van der Mensbrugghe, 1999. "General Equilibrium Assessments of Trade Liberalization in APEC Countries," Discussion Paper Series 103, Research Institute for Economics & Business Administration, Kobe University.
    2. Lee, Hiro & Roland-Holst, David W., 1998. "Prelude to the pacific century: Overview of the region, leading issues, and methodology," MPRA Paper 82339, University Library of Munich, Germany.
    3. Meenu Tewari, 2005. "The Role of Price and Cost Competitiveness in Apparel Exports, Post-MFA: A Review," Indian Council for Research on International Economic Relations, New Delhi Working Papers 173, Indian Council for Research on International Economic Relations, New Delhi, India.
    4. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2000. "Computational Analysis of the Government of India's Market Opening Initiatives," Discussion Papers Series, Department of Economics, Tufts University 0002, Department of Economics, Tufts University.
    5. Kym Anderson, 2005. "On the Virtues of Multilateral Trade Negotiations," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 414-438, December.
    6. Lucian Cernat & Sam Laird & Alessandro Turrini, 2003. "How Important are Market Access Issues for Developing Countries in the Doha Agenda?," International Trade 0302004, University Library of Munich, Germany.
    7. Konan, Denise Eby & Maskus, Keith E., 2006. "Quantifying the impact of services liberalization in a developing country," Journal of Development Economics, Elsevier, vol. 81(1), pages 142-162, October.
    8. Kym Anderson, 2003. "Trade Liberalization, Agriculture, and Poverty in Low-income Countries," WIDER Working Paper Series DP2003-25, World Institute for Development Economic Research (UNU-WIDER).
    9. Robinson, Sherman & Thierfelder, Karen, 2002. "Trade liberalisation and regional integration: the search for large numbers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), pages 1-20.
    10. Anna Strutt & Kym Anderson, 2000. "Will Trade Liberalization Harm the Environment? The Case of Indonesia to 2020," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(3), pages 203-232, November.
    11. Yi, Chae-Deug, 2020. "The computable general equilibrium analysis of the reduction in tariffs and non-tariff measures within the Korea-Japan-European Union free trade agreement," Japan and the World Economy, Elsevier, vol. 56(C).
    12. Raihan, Selim & Razzaque, Mohammad A, 2007. "WTO and regional trade negotiation outcomes: quantitative assessments of potential implications on Bangladesh," MPRA Paper 38475, University Library of Munich, Germany.
    13. Raphael A. Auer & Barthélémy Bonadio & Andrei A. Levchenko, 2020. "The Economics and Politics of Revoking NAFTA," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(1), pages 230-267, March.
    14. Kym Anderson, 2016. "Agricultural Trade, Policy Reforms, and Global Food Security," Palgrave Studies in Agricultural Economics and Food Policy, Palgrave Macmillan, number 978-1-137-46925-0, November.
    15. Kym Anderson, 2004. "Agriculture, Trade Reform And Poverty Reduction: Implications For Sub-Saharan Africa," UNCTAD Blue Series Papers 22, United Nations Conference on Trade and Development.
    16. Randhir, Timothy O. & Hertel, Thomas W., 2000. "Trade Liberalization as a Vehicle for Adapting to Global Warming," Agricultural and Resource Economics Review, Cambridge University Press, vol. 29(2), pages 159-172, October.
    17. Domingues, Edson P. & Haddad, Eduardo A. & Hewings, Geoffrey, 2008. "Sensitivity analysis in applied general equilibrium models: An empirical assessment for MERCOSUR free trade areas agreements," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(2), pages 287-306, May.
    18. Kathuria, Sanjay & Martin, Will & Bhardwaj, Anjali, 2001. "Implications for South Asian countries for abolishing the Multifibre Arrangement," Policy Research Working Paper Series 2721, The World Bank.
    19. Kym Anderson, 2003. "Measuring Effects of Trade Policy Distortions: How Far Have We Come?," The World Economy, Wiley Blackwell, vol. 26(4), pages 413-440, April.
    20. Hiro Lee & Dominique van der Mensbrugghe, 2001. "A General Equilibrium Analysis of the Interplay between Foreign Direct Investment and Trade Adjustments," Discussion Paper Series 119, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2001.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:pugtwp:330941. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.