Meng-jie Li
Published: 2018
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Since its Economic Reform in 1978 China has sustained high rates of economic growth that have translated into ongoing increases in income per capital. On almost any dimension China’s economic miracle has created gains that are remarkable relative to gains that have been observed in other countries and in other time periods. This dissertation seeks to analyze the trends and pattern of China’s high-tech exports as well as the drivers of growth in China’s high-tech export. The first chapter seeks to explain the determinants of China’s high tech exports through the use of a gravity model of trade. For this project, China’s high tech exports from five key sectors are measured between bilateral province exporters and destination country importers. For this reason, identification of the effects of R&D is facilitated by wide variation across provinces in the sector-emphasis of R&D as well as in the relative importance of firm-level R&D funding of R&D effort. To control for basic trade determinants, the new R&D variables are added to a gravity estimation that tracks high tech exports by firms distinguished by ownership type at the sector level for each bilateral province destination country pair. Consistent with traditional use of gravity estimation, the traditional gravity variable perform as expected. More important, the full panel results and estimates from the preferred sample of ordinary export firms all reveal a positive effect of R&D effort on provincial high tech exports. The estimated impact related to the R&D measure that denotes the percentage of firms raising their own R&D funds is stronger than the effect associated with the level of R&D investments at the sector province level. The regression estimates imply that a 1% increase in provincial total R&D investments will increase estimated ordinary exports by 0.24%, while a 1% increase in share of firm raised R&D funds will increase estimated ordinary exports by 1.161%. Moving beyond the full sample estimates, this chapter uncovers notable sources of heterogeneity in the responsiveness to R&D effort. On this dimension, the estimation reveals sizeable differences in the benefits of R&D across sectors as well as differences in the ability of private or domestic Chinese firms to generate high tech exports. To understand how the quality of China’s trade has changed, the second chapter seeks to understand the factors which influenced China’s trade prices, measured by unit values. To motivate this inquiry, the chapter highlights the notable features in China’s trade with an emphasis on export prices for China’s high-tech manufacturing sectors. We characterize trading data in light of China’s provinces and the income levels of income for the destination countries that purchased their exports. Generally, the rank of rich, medium and poor remained relatively stable during our sample period. Only a few importers and exporters changed from poor to medium or from medium to rich or reversed. After we characterize China’s trade with a focus on province exporter and destination importer income, we turn to estimation to look for the factors that explain trade unit values. If one adopts Schott’s (2004) interpretation of unit values as indicators of quality, the results robustly show that human capital, measured by changes in education across provinces and over time, is an important determinant of rising export prices. When we evaluate issues related to technology we arrive at two conclusions. First, China manages to sell products with higher unit values when it exports goods that are characterized as having longer R&D product life cycles through the use of a measure created by Bilir (2014). Second, increased spending on R&D, which is identified through differences in R&D expenditure across provinces and across time, confirms a positive association between R&D spending at the provincial level and the unit values of the provinces exports. In chapter three, we extend our empirical research on evolving path of export sophistication and market competition, and we attempt to draw some policy implication based on the results of our estimation. To implement this project we use comprehensive Chinese provincial data on trade and economic characteristics to investigate the effect of industrial policy instruments and foreign direct investment on three aspects of China’s economy– local economic growth, export sophistication, and market concentration. We find evidence that China’s industrial policy instruments facilitated local economic growth, and promoted export sophistication. However, these instruments did not appear to encourage market competition. Importantly, the results suggest that the efficacy of the policy instruments varied across firms as distinguished by ownership types. For the estimation period, the results show that the allocation of policy resources to local private firms had a stronger impact on the attainment of positive economic outcomes. Furthermore, in terms of policy instrument efficacy, the estimation results indicate that subsidized interest rates had stronger effects than did subsidies or and tax holidays. From a broader policy perspective, these results show how the level and form of policy interventions shape the effectiveness of interventions targeted at improving local economies or the quality of exports.