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A Unified Model of Structural Adjustments and International Trade: Theory and Evidence from China

  • Vivian Yue

    (Federal Reserve Board of Governors)

  • Jiandong Ju

    (Tsinghua University)

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    In this paper, we first document the patterns of structural adjustments in Chinese manufacturing production and exports using a firm level data from China. We find that manufacturing production became more capital intensive while exports became more labor intensive from 1999 to 2007. To explain these patterns, we unify major international trade theories by embedding the Melitz (2003) model of heterogeneous firm into the Dornbusch-Fischer-Samuelson model with both Ricardian and Heckscher-Ohlin (1977, 1980) comparative advantage. We discuss the equilibrium patterns of production and international trade. Then we solve the model numerically and analyze other equilibrium properties. Finally we study the comparative statics to examine the effects of trade liberalization, capital deepening and technology changes.

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    File URL: https://www.economicdynamics.org/meetpapers/2013/paper_859.pdf
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    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 859.

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    Date of creation: 2013
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    Handle: RePEc:red:sed013:859
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    1. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June.
    2. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
    4. Yue Ma & Heiwai Tang & Yifan Zhang, 2012. "Factor Intensity, Product Switching, and Productivity: Evidence from Chinese Exporters," Working Papers 252012, Hong Kong Institute for Monetary Research.
    5. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
    6. Zhi Wang & Shang-Jin Wei, 2008. "What Accounts for the Rising Sophistication of China's Exports?," NBER Working Papers 13771, National Bureau of Economic Research, Inc.
    7. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
    8. Andrew Bernard & Stephen Redding & Peter Schott, 2004. "Comparative advantage and heterogeneous firms," IFS Working Papers W04/24, Institute for Fiscal Studies.
    9. Bernard, Andrew B. & Jensen, J Bradford & Redding, Stephen J. & Schott, Peter K., 2007. "Firms in International Trade," CEPR Discussion Papers 6277, C.E.P.R. Discussion Papers.
    10. Roberto Alvarez & Ricardo López, 2005. "Exporting and performance: evidence from Chilean plants," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1384-1400, November.
    11. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
    12. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1980. "Heckscher- Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 203-24, September.
    13. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
    14. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2011. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," NBER Working Papers 17524, National Bureau of Economic Research, Inc.
    15. Haichao Fan & Edwin L.-C. Lai & Han Steffan Qi, 2011. "A Model of Trade with Ricardian Comparative Advantage and Intra-sectoral Firm Heterogeneity," CESifo Working Paper Series 3634, CESifo Group Munich.
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