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Functional upgrading in China’s export processing sector

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  • Ari Van Assche
  • Jo Van Biesebroeck

Abstract

Functional upgrading occurs when a firm acquires more sophisticated functions within an existing value chain. In this paper, we analyze if there is evidence of this type of upgrading in China’s export processing regime by investigating dynamics in the relative prevalence of Import & Assembly (IA) versus Pure Assembly (PA) processing trade over the period 2000-2013. Firms in both regimes provide similar manufacturing services to foreign companies, but IA firms also conduct the sophisticated tasks of quality control, searching, financing and storing imported materials. Consistent with a trend of functional upgrading, we show that the share of IA trade in total processing trade has increased rapidly during the period 2000-2006, both overall and within product categories. Furthermore, we find that this trend has gone hand in hand with improvements in a sector’s labor productivity and unit values. Against expectations, we find that this process has slowed down notably during the period 2006-2013.

Suggested Citation

  • Ari Van Assche & Jo Van Biesebroeck, 2017. "Functional upgrading in China’s export processing sector," Working Papers of Department of Economics, Leuven 590692, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:590692
    Note: paper number DPS 17.10
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    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • F1 - International Economics - - Trade
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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