Foreign direct investment and export quality upgrading in China's manufacturing sector

Anwar, Sajid, and Sun, Sizhong (2018) Foreign direct investment and export quality upgrading in China's manufacturing sector. International Review of Economics & Finance, 54. pp. 289-298.

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Abstract

Using a Melitz-type theoretical model of firm heterogeneity, we show that (i) the presence of foreign firms within an industry affects the industry export quality and (ii) the industry export quality is directly related to the industry export price. As the industry export price can be approximated by the industry export unit value, our work provides a rigorous theoretical justification for several empirical studies that use export unit value as a proxy for export quality. We then convert our theoretical model-based structural relationships into a system of equations. Using industry level panel data from China's manufacturing sector, and measuring the industry export quality by the industry export unit value, we find that an increase in foreign presence in China's manufacturing sector contributes to a significant increase in China's export quality. We also distinguish between foreign presence in China originating from the Hong Kong, Macao and Taiwan (HMT) and non-HMT regions. We find that foreign presence in China's manufacturing sector that originates from the HMT region leads to a much larger increase in China's export quality. The main empirical result is found to be robust with respect to alternative measures of foreign presence and aggregate demand.

Item ID: 53037
Item Type: Article (Research - C1)
ISSN: 1873-8036
Keywords: export unit value; export quality; FDI; productivity spillovers; China
Date Deposited: 05 Apr 2018 00:15
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140210 International Economics and International Finance @ 30%
14 ECONOMICS > 1402 Applied Economics > 140209 Industry Economics and Industrial Organisation @ 70%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9103 International Trade > 910399 International Trade not elsewhere classified @ 50%
91 ECONOMIC FRAMEWORK > 9102 Microeconomics > 910210 Production @ 50%
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