Domestic Value Added in Exports: Theory and Firm Evidence from China

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. China has defied the declining trend in domestic content in exports in many countries. We study China's rising domestic content in exports using firm-and customs transaction-level data. Our approach embraces firm heterogeneity and hence reduces aggregation bias. We find that the substitution of domestic for imported materials by individual processing exporters caused China's domestic content in exports to increase from 65% to 70% in 2000-2007. Such substitution was induced by the country's trade and investment liberalization, which deepened its engagement in global value chains and led to a greater variety of domestic materials becoming available at lower prices. Terms of use: Documents in EconStor mayJEL-Codes: F100, F140.

Cardiac Arrest or Dizzy Spell

“…The regional value chain appears to be shrinking overall, led by the largest economies of the region. The downward trend in China's adjusted GVC indicator over the most recent period after the global financial crisis is consistent with China moving-up the global value chain with a more mature domestic intermediate production sector supporting its manufactured exports (Kee and Tang, 2015). Developments in Chinese GVCs are highly correlated with changes in other countries in Asia including Korea and Japan suggesting that China may play a role in the trade slowdown via GVCs.…”

“…A further explanation for the slowdown is that international fragmentation of production processes have come to a limit and will remain or return to being regional production networks rather than globallydistributed supply chains (Srinivasan et al, 2014;Crozet et al 2015;Kee and Tang, 2015;ECB, 2015). Although global value chains (GVCs) play a crucial role in shaping the link between production processes and international trade, there are important limitations in providing up-to-date time series measures of their importance given the lack of timely up-to-date international input-output (I-O) matrices and measures of value-added trade flows.…”

Vertical specialization, tariff shirking and trade

“…Two stylized facts back this up. First, recent estimates suggest that processing exports embody less than half as much domestic value added than ordinary exports (Kee and Tang 2013;Koopman, Wang, and Wei 2012). Second, as is shown in Figure 3, foreign-owned firms play a much more dominant role in the processing trade regime than in the ordinary trade regime.…”

“…As both Kee and Tang (2013) and Koopman, Wang, and Wei (2012) have illustrated, processing exports are predominantly part of global value chains, while ordinary exports more extensively use domestic value chains. In line with our theoretical predictions, we find strong evidence that processing exports are more sensitive to the imposition of antidumping measures than ordinary exports.…”

China’s Evolving Role in Global Production Networks: Implications for Trump’s Trade War

“…The analysis is motivated by a sizeable recent literature on the deepening of China's engagement in global production sharing. There is evidence coming from firm-level studies that firms engaged in final assembly in China have begun to procure inputs from domestic sources (Upward et al 2013;Yang and Hayakawa 2015;Yang and Tsou 2015;Kang and Shen 2016;Kee and Tang 2016;Kong and Kneller 2016). According to these studies, the process of industrial deepening has been underpinned by the relocation of manufacturing facilities to China by foreign component-producing firms to supply the rapidly expanding final assembly activities in China.…”