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Domestic Value Added in Exports: Theory and Firm Evidence from China


  • Hiau Looi Kee
  • Heiwai Tang


China has defied the declining trend in domestic content in exports in many countries. We study China’s rising domestic content in exports using firm- and customs transaction-level data. Our approach embraces firm heterogeneity and hence reduces aggregation bias. We find that the substitution of domestic for imported materials by individual processing exporters caused China’s domestic content in exports to increase from 65% to 70% in 2000-2007. Such substitution was induced by the country’s trade and investment liberalization, which deepened its engagement in global value chains and led to a greater variety of domestic materials becoming available at lower prices.

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  • Hiau Looi Kee & Heiwai Tang, 2015. "Domestic Value Added in Exports: Theory and Firm Evidence from China," CESifo Working Paper Series 5614, CESifo.
  • Handle: RePEc:ces:ceswps:_5614

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    References listed on IDEAS

    1. Cebeci, Tolga & Fernandes, Ana M. & Freund, Caroline & Pierola, Martha Denisse, 2012. "Exporter dynamics database," Policy Research Working Paper Series 6229, The World Bank.
    2. Ahn, JaeBin & Khandelwal, Amit K. & Wei, Shang-Jin, 2011. "The role of intermediaries in facilitating trade," Journal of International Economics, Elsevier, vol. 84(1), pages 73-85, May.
    3. 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.
    4. Koopman, Robert & Wang, Zhi & Wei, Shang-Jin, 2012. "Estimating domestic content in exports when processing trade is pervasive," Journal of Development Economics, Elsevier, vol. 99(1), pages 178-189.
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    More about this item


    firm heterogeneity; domestic value added; value added trade; China; global value chains; trade liberalization; FDI liberalization;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade


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