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China's Local Comparative Advantage

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  • James Harrigan
  • Haiyan Deng

Abstract

China's trade pattern is influenced not just by its overall comparative advantage in labor intensive goods but also by geography. We use two variants of the Eaton-Kortum (2002) model to study China's local comparative advantage. The theory predicts that China's share of export markets should grow most rapidly where China's share is initially large. A corollary is that exporters that have a big market share where China's share is initially large should see the largest fall in their market shares. These market share change predictions are strongly supported in the data from 1996 to 2006. We also show theoretically that since trade costs are proportional to weight rather than value, relative distance affects local comparative advantage as well as the overall volume of trade. The model predicts that China has a comparative advantage in heavy goods in nearby markets, and lighter goods in more distant markets. This theory motivates a simple empirical prediction: within a product, China's export unit values should be increasing in distance. We find strong support for this effect in our empirical analysis on product-level Chinese exports in 2006.

Suggested Citation

  • James Harrigan & Haiyan Deng, 2008. "China's Local Comparative Advantage," NBER Working Papers 13963, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13963
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    11. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 647-678.
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    Cited by:

    1. Veysel Avsar, 2013. "Antidumping, Retaliation Threats, and Export Prices," The World Bank Economic Review, World Bank Group, vol. 27(1), pages 133-148.
    2. Bianka Dettmer & Andreas Freytag & Peter Draper, 2013. "Check-in, departure and arrival times: Air cargo in Southern Africa?," Jena Economics Research Papers 2013-018, Friedrich-Schiller-University Jena.
    3. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    4. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
    5. Giovanni Federico & Nikolaus Wolf, 2011. "Comparative Advantage: A Long-Run Perspective," Quaderni di storia economica (Economic History Working Papers) 09, Bank of Italy, Economic Research and International Relations Area.
    6. Wolf, Nikolaus & Federico, Giovanni, 2012. "Italy?s Comparative Advantage: A Long-Run Perspective," CEPR Discussion Papers 8758, C.E.P.R. Discussion Papers.
    7. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8m210prh is not listed on IDEAS
    8. Mallick, Sushanta & Marques, Helena, 2016. "Does quality differentiation matter in exporters' pricing behaviour? Comparing China and India," China Economic Review, Elsevier, vol. 40(C), pages 71-90.
    9. Giovanni Federico & Nikolaus Wolf, 2011. "Comparative Advantages in Italy: A Long-Run Perspective," Quaderni di storia economica (Economic History Working Papers) 09, Bank of Italy, Economic Research and International Relations Area.
    10. repec:hal:spmain:info:hdl:2441/nki2gcedn93280ns6fslbhdnm is not listed on IDEAS
    11. Békés, Gábor & Muraközy, Balázs, 2012. "Temporary trade and heterogeneous firms," Journal of International Economics, Elsevier, vol. 87(2), pages 232-246.
    12. repec:hal:spmain:info:hdl:2441/6g0gsihsjmn5snc9pb0jo6hhp is not listed on IDEAS
    13. Mallick, Sushanta & Marques, Helena, 2016. "Pricing strategy of emerging market exporters in alternate currency regimes: The role of comparative advantage," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 68-81.
    14. Jean-Raphael Chaponniere & Jean-Pierre Cling, 2009. "Vietnam's Export-Led Growth Model and Competition with China," Economie Internationale, CEPII research center, issue 118, pages 101-130.

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    JEL classification:

    • F1 - International Economics - - Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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