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Tariff and FDI Liberalization: What to Expect from China's Entry into the WTO?

Author

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  • Sebastián Claro

    () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

This paper presents a model that introduces foreign firms' competition in product and factor markets in an otherwise standard tariff liberalization setting. Pressures on factor markets from more advanced foreign firms undermine the competitive position of native enterprises. The final impact on native firms' employment, the country's comparative advantage and factor returns depend on the size and dispersion of the technology differences, the ability of native firms to imitate more advanced technologies and the final tariff structure. The case of China's entry into the WTO reveals the relevance of this feature, as the elimination of the dual economic structure is mandated by the WTO along with a fall in tariffs. The results show that in the short run the required process of FDI liberalization can generate a substantial impact on the factorial distribution of income and may imply a shift toward a more labor intensive mix of production, depending on the degree of technological imitations. However, nothing can be said with respect to the long run pattern of production.

Suggested Citation

  • Sebastián Claro, 2002. "Tariff and FDI Liberalization: What to Expect from China's Entry into the WTO?," Documentos de Trabajo 209, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:209
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    File URL: http://www.economia.uc.cl/docs/dt_209.pdf
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    References listed on IDEAS

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    1. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
    2. Loren Brandt & Xiaodong Zhu, 2000. "Redistribution in a Decentralized Economy: Growth and Inflation in China under Reform," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 422-451, April.
    3. Robert C. Feenstra & Wen Hai & Wing T. Woo & Shunli Yao, "undated". "The U.S.-China Bilateral Trade Balance: It'S Size And Determinants," Department of Economics 98-09, California Davis - Department of Economics.
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    Cited by:

    1. Elena Ianchovichina & Terrie Walmsley, 2005. "Impact of China's WTO Accession on East Asia," Contemporary Economic Policy, Western Economic Association International, vol. 23(2), pages 261-277, April.
    2. Claustre Bajona & Tianshu Chu, 2010. "Reforming State Owned Enterprises in China: Effects of WTO Accession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 800-823, October.
    3. Sebastián Claro, 2002. "On the Costs and Effectiveness of Tarjeting State Employment: Germany in the 1990s and China in the 2000s," Documentos de Trabajo 218, Instituto de Economia. Pontificia Universidad Católica de Chile..

    More about this item

    Keywords

    Trade liberalization; technology transfers; China; WTO;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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