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

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  • Hiau Looi Kee
  • Heiwai Tang

Abstract

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.

Suggested Citation

  • Hiau Looi Kee & Heiwai Tang, 2015. "Domestic Value Added in Exports: Theory and Firm Evidence from China," CESifo Working Paper Series 5614, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5614
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp5614.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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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    Keywords

    firm heterogeneity; domestic value added; value added trade; China; global value chains; trade liberalization; FDI liberalization;

    JEL classification:

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

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