BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 31/2008:
How vertically specialized is Chinese trade?
Judith Dean ()
, K.C. Fung and Zhi Wang
Abstract: Two recent phenomena have transformed the nature of world
trade: the explosive growth of Chinese trade, and the growth of vertically
specialized trade due to international production fragmentation. While
vertical specialization may explain much of the growth and unique features
of Chinese trade, few papers have quantitatively assessed these two
phenomena together. In part, this is because it is difficult to measure
just how vertically specialized Chinese trade is. The unique features of
China's extensive processing trade cause both the identification of
imported intermediate goods, and their allocation across sectors, to depend
upon the Chinese trade regime. In this paper, we estimate the vertical
specialization of Chinese exports, addressing these two challenges. Using
two Chinese benchmark input-output tables, and a detailed Chinese trade
dataset which distinguishes processing trade from other forms of trade, we
develop a new method of identifying intermediate goods imported into China.
Vertical specialization is then estimated using two methods. The first
method uses the Hummels, Ishii and Yi (2001) measure, the official
benchmark IO tables, and incorporates our identification correction. The
second method follows the first, but also incorporates the Koopman, Wang
and Wei (2008) method of splitting the benchmark IO tables into separate
tables for processing and normal exports, in order to address the
allocation problem. Results show strong evidence of an Asian network of
intermediate suppliers to China, and the two methods provide a range of
estimates for the foreign content of Chinese exports. In 2002 aggregate
exports ranges between 25% and 46%, with some individual sectors are as
high as 52%-95%. Across destinations, under both methods, the vertical
specialization of Chinese exports declines with the level of development of
the trading partner.
Keywords: China; fragmentation; vertical specialization; trade growth; (follow links to similar papers)
JEL-Codes: F10; F14; (follow links to similar papers)
35 pages, December 23, 2008
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