IDEAS home Printed from https://ideas.repec.org/p/cep/cepdps/dp1508.html
   My bibliography  Save this paper

Structural adjustments and international trade: theory and evidence from China

Author

Listed:
  • Hanwei Huang
  • Jiandong Ju
  • Vivian Z. Yue

Abstract

This paper studies how changes in factor endowment, technology, and trade costs jointly determine the structural adjustments, which are defined as changes in distributions of production and exports. We document the structural adjustments in Chinese manufacturing firms from 1999 to 2007 and find that production became more capital-intensive while exports did not. We structurally estimate a Ricardian and Heckscher-Ohlin model with heterogeneous firms to explain this seemingly puzzling pattern. Counterfactual simulations show that capital deepening made Chinese production more capital-intensive, but technology changes that biased toward the labor-intensive sectors and trade liberalizations provided a counterbalancing force.

Suggested Citation

  • Hanwei Huang & Jiandong Ju & Vivian Z. Yue, 2017. "Structural adjustments and international trade: theory and evidence from China," CEP Discussion Papers dp1508, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1508
    as

    Download full text from publisher

    File URL: https://cep.lse.ac.uk/pubs/download/dp1508.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hsieh, Chang-Tai & Ossa, Ralph, 2016. "A global view of productivity growth in China," Journal of International Economics, Elsevier, vol. 102(C), pages 209-224.
    2. Rudiger Dornbusch & Stanley Fischer & Paul A. Samuelson, 1980. "Heckscher-Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 203-224.
    3. Toshihiro Okubo, 2009. "Firm heterogeneity and Ricardian comparative advantage within and across sectors," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(3), pages 533-559, March.
    4. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    5. Harrigan, James, 1997. "Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model," American Economic Review, American Economic Association, vol. 87(4), pages 475-494, September.
    6. Trevor Tombe & Xiaodong Zhu, 2019. "Trade, Migration, and Productivity: A Quantitative Analysis of China," American Economic Review, American Economic Association, vol. 109(5), pages 1843-1872, May.
    7. Arezki, Rabah & Fetzer, Thiemo & Pisch, Frank, 2017. "On the comparative advantage of U.S. manufacturing: Evidence from the shale gas revolution," Journal of International Economics, Elsevier, vol. 107(C), pages 34-59.
    8. Ju, Jiandong & Lin, Justin Yifu & Wang, Yong, 2015. "Endowment structures, industrial dynamics, and economic growth," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 244-263.
    9. Levchenko, Andrei A. & Zhang, Jing, 2016. "The evolution of comparative advantage: Measurement and welfare implications," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 96-111.
    10. Morrow, Peter M., 2010. "Ricardian-Heckscher-Ohlin comparative advantage: Theory and evidence," Journal of International Economics, Elsevier, vol. 82(2), pages 137-151, November.
    11. John Baldwin & Wulong Gu, 2003. "Export-market participation and productivity performance in Canadian manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 634-657, August.
    12. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, vol. 82(2), pages 152-167, November.
    13. Haichao Fan & Edwin L.-C. Lai & Han Steffan Qi, 2011. "A Model of Trade with Ricardian Comparative Advantage and Intra-sectoral Firm Heterogeneity," CESifo Working Paper Series 3634, CESifo.
    14. Harrigan, James, 1995. "Factor endowments and the international location of production: Econometric evidence for the OECD, 1970-1985," Journal of International Economics, Elsevier, vol. 39(1-2), pages 123-141, August.
    15. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    16. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    17. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    18. Ma, Yue & Tang, Heiwai & Zhang, Yifan, 2014. "Factor Intensity, product switching, and productivity: Evidence from Chinese exporters," Journal of International Economics, Elsevier, vol. 92(2), pages 349-362.
    19. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    20. Julian di Giovanni & Andrei A. Levchenko & Jing Zhang, 2014. "The Global Welfare Impact of China: Trade Integration and Technological Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(3), pages 153-183, July.
    21. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    22. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2012. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351.
    23. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    24. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June.
    25. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    26. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    27. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    28. Broda, Christian & Greenfield, Joshua & Weinstein, David E., 2017. "From groundnuts to globalization: A structural estimate of trade and growth," Research in Economics, Elsevier, vol. 71(4), pages 759-783.
    29. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
    30. Jan De Loecker & Pinelopi Koujianou Goldberg, 2014. "Firm Performance in a Global Market," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 201-227, August.
    31. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    32. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
    33. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    34. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    35. Robert C. Feenstra, 2015. "Advanced International Trade: Theory and Evidence Second Edition," Economics Books, Princeton University Press, edition 2, number 10615.
    36. Arnaud Costinot & Dave Donaldson & Cory Smith, 2016. "Evolving Comparative Advantage and the Impact of Climate Change in Agricultural Markets: Evidence from 1.7 Million Fields around the World," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 205-248.
    37. Defever, Fabrice & Riaño, Alejandro, 2017. "Subsidies with export share requirements in China," Journal of Development Economics, Elsevier, vol. 126(C), pages 33-51.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cheng, Dong & Shi, Xunpeng & Yu, Jian, 2021. "The impact of green energy infrastructure on firm productivity: Evidence from the Three Gorges Project in China," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 385-406.
    2. Tomohiro Ara, 2020. "Country size, technology, and Ricardian comparative advantage," Review of International Economics, Wiley Blackwell, vol. 28(2), pages 497-536, May.
    3. Fan, Haichao & Gou, Qin & Peng, Yuchao & Xie, Wenjing, 2020. "Spillover effects of capital controls on capital flows and financial risk contagion," Journal of International Money and Finance, Elsevier, vol. 105(C).
    4. Cheng, Dong & Yu, Jian & Zhang, Dayong & Zheng, Wenping, 2020. "Is heterogeneous capital depreciation important for estimating firm-level productivity? Evidence from Chinese manufacturing firms," Research in International Business and Finance, Elsevier, vol. 52(C).
    5. Tabuchi, Takatoshi & Wang, Congcong & Zhu, Xiwei, 2023. "A Model of Economic Growth in China," MPRA Paper 117634, University Library of Munich, Germany.

    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. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    2. Hsu, Wen-Tai & Lu, Yi & Wu, Guiying Laura, 2020. "Competition, markups, and gains from trade: A quantitative analysis of China between 1995 and 2004," Journal of International Economics, Elsevier, vol. 122(C).
    3. William R Kerr, 2018. "Heterogeneous Technology Diffusion and Ricardian Trade Patterns," The World Bank Economic Review, World Bank, vol. 32(1), pages 163-182.
    4. Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, American Economic Association, vol. 107(3), pages 633-689, March.
    5. Miaojie Yu, 2020. "China-US Trade War and Trade Talk," Springer Books, Springer, number 978-981-15-3785-1, February.
    6. Vivian Yue & Jiandong Ju, 2013. "A Unified Model of Structural Adjustments and International Trade: Theory and Evidence from China," 2013 Meeting Papers 859, Society for Economic Dynamics.
    7. Edwin L.-C. Lai & Haichao Fan & Han Steffan Qi, 2020. "Global gains from reduction in trade costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(1), pages 313-345, July.
    8. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.
    9. Liu, Chen & Ma, Xiao, 2018. "China's Export Surge and the New Margins of Trade," MPRA Paper 103970, University Library of Munich, Germany, revised Oct 2020.
    10. David H. Autor & David Dorn & Gordon H. Hanson & Jae Song, 2014. "Trade Adjustment: Worker-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1799-1860.
    11. Yang Yang, 2018. "Transport Infrastructure, City Productivity Growth and Sectoral Reallocation: Evidence from China," IMF Working Papers 2018/276, International Monetary Fund.
    12. Benny Kleinman & Ernest Liu & Stephen J. Redding, 2024. "International Friends and Enemies," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(4), pages 350-385, October.
    13. Fan, Haichao & Lai, Edwin L.-C. & Li, Yao Amber, 2015. "Credit constraints, quality, and export prices: Theory and evidence from China," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 390-416.
    14. Egger, Peter & , & Nigai, Sergey, 2020. "Empirical Productivity Distributions and International Trade," CEPR Discussion Papers 15160, C.E.P.R. Discussion Papers.
    15. Daniel Bernhofen, 2010. "The Empirics of General Equilibrium Tade Theory: What Have we Learned?," CESifo Working Paper Series 3242, CESifo.
    16. Defever, Fabrice & Riaño, Alejandro, 2012. "China's pure exporter subsidies," LSE Research Online Documents on Economics 48929, London School of Economics and Political Science, LSE Library.
    17. Pol Antràs & Davin Chor, 2021. "Global Value Chains," NBER Working Papers 28549, National Bureau of Economic Research, Inc.
    18. Feng, Xiao & Wang, Yongjin & Zhao, Laixun, 2022. "Export capacity constraints and distortions," Journal of Development Economics, Elsevier, vol. 157(C).
    19. Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).
    20. repec:wsr:wpaper:y:2013:i:121 is not listed on IDEAS
    21. Idrisova, Vittoria (Идрисова, Виттория), 2017. "Determinants of Value-Added Exports: The Role of Import Demand Factors [Детерминанты Экспорта Добавленной Стоимости: Роль Факторов Спроса На Импорт]," Working Papers 051715, Russian Presidential Academy of National Economy and Public Administration.

    More about this item

    Keywords

    structural adjustments; comparative advantage; heterogeneous firm;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:cep:cepdps:dp1508. 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: the person in charge (email available below). General contact details of provider: https://cep.lse.ac.uk/_new/publications/discussion-papers/ .

    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.