Alyson C. Ma

Export Spillovers to Chinese Firms: Evidence from Provincial Data

Multinational firms are important conduits of managerial skills, foreign market linkages, and technology. Foreign export spillovers associated with multinational firms have the potential to reduce entry costs for local exporting firms. This paper examines whether exports by multinational firms increase the probability of exporting by domestic Chinese firms. The findings from the Probit estimation highlight the varying relationships between multinational exports and local foreign entry based on the type of ownership. The results from separating foreign-invested enterprises into overseas Chinese companies and OECD-based multinational firms suggest that the export activity of the former does not increase the probability of exporting by local firms, whereas the latter positively influence the export decision of local firms, particularly under processing trade.

The Role of Trade Costs in Global Production Networks: Evidence from China's Processing Trade Regime

In a seminal contribution, Yi (2003) has shown that vertically specialized trade should be more sensitive to changes in trade costs than regular trade. Yet empirical evidence of this remains remarkably scant. This paper uses data from Chinas processing trade regime to analyze the role of trade costs on trade within global production networks (GPNs). Under this regime, firms are granted duty exemptions on imported inputs as long as they are used solely for export purposes. As a result, the data provide information on trade between three sequential nodes of a global supply chain: the location of input production, the location of processing (in China) and the location of further consumption. This makes it possible to examine the role of both trade costs related to the import of inputs (upstream trade costs) and trade costs related to the export of final goods (downstream trade costs) on intra-GPN trade. The authors show that intra-GPN trade differs from regular trade in that it not only depends on downstream trade costs, but also on upstream trade costs and the interaction of both. Moreover, intra-GPN trade is more sensitive to oil price movements and business cycle movements than regular trade. Finally, the paper analyzes three channels through which intra-GPN trade have amplified the trade collapse during the recent Global Recession.

China's Role in Global Production Networks

Vertical specialization is one of the most notable trends in the international organization of production (Hummels, Jun and Yi, 2001; Yi, 2003; Desai, 2009). Thanks to reductions in communication, transportation and other trade costs, multinational firms are slicing up their value chains and are dispersing their production activities across multiple countries. This means that a single final good is often worked on in many countries, with each sequential node in the value chain performed in the location that is most advantageous for the process.China has been a large beneficiary of this vertical specialization process, with multinational firms integrating the country into their global production networks by offshoring labor-intensive final assembly activities to the country (Branstetter and Lardy, 2006; Amiti and Freund, 2008). However, at least a few questions about China’s role in these global production networks are left unanswered. First, in which type of industries is China integrated into global production networks? The answer to this question will be important to understand the driving forces behind the rapid technological upgrading trajectory of China’s exports. Second, what factors have driven multinational firms to offshore assembly activities to China? Existing studies generally attribute this to the country’s relatively low labor costs and its favorable export promotion policies. But, as we will discuss below, China’s heavy reliance on imported inputs for its assembly activities suggests that its geographic location may also have played an important role. Finally, how important is Canada as a supplier to these global production networks?

Vertical Specialization, Tariff Shirking and Trade

The core idea behind the paper is that trade policy matters for the organization of global value chains, a notion largely neglected by economists but which has important implications for our understanding of trade and the international transmission of trade policy shocks. We develop a theoretical model in which a firm’s ability to spatially separate manufacturing from headquarter services gives them the flexibility to circumvent economy-specific tariff changes by switching their assembly location abroad. We show that tariff shirking increases the elasticity of bilateral trade to economy-specific tariff hikes due to an extra extensive margin effect. Furthermore, we show that tariff shirking affects the vulnerability of headquarter services and manufacturing to trade policy shocks in opposite ways. While tariff shirking dampens the vulnerability of headquarter services to trade policy shocks, it amplifies the vulnerability of manufacturing to trade policy shocks. Using firm-level and province-level export data from the People’s Republic of China, we provide evidence in line with the theoretical model.

The Effects of U.S.-China Trade on Employment and Wages in the U.S.-Mexico Border Region

This paper investigates the impact of foreign competition from China on employment and wages in four U.S.-Mexico border counties: Santa Cruz, AZ, San Diego, CA, El Paso, TX, and Webb, TX. Using disaggregated industry-level data between 1992 and 2006, we find that increased trade with China is associated with significantly lower county-industry employment and wages. In contrast, and as expected, increased imports from Mexico are positively related to increased employment and wages in U.S. Mexico border counties. The results indicate that the U.S.-Mexico supply-chain relationship related to the maquiladora industry is significantly affected by Chinese competition. Implications for policy include an increased focus on federal programs that are intended to diversify the border economy.

Spatial Linkages and Export Processing Location in China

This paper provides empirical evidence that spatial linkages matter for the localisation of global value chain activities. Relying on processing trade data for Chinese provinces during the period 1997–2008, we investigate whether a Chinese provinces proximity to international suppliers and international buyers within an industry chain affects its attractiveness as an export processing location. We find that the upstream and downstream spatial linkages both have a strong and independent explanatory power. We also explore what factors explain the influence of these spatial linkages.

Is Our World Going to Get a Whole Lot Smaller

The surge of oil prices in recent years has led to speculation that rising transportation costs could end the period of dramatic world trade growth in the words of Rubin (2009), Your world is going to get a whole lot smaller. Using data from Chinas Customs Statistics, we examine the impact of oil prices on trades sensitivity to distance. We find that higher oil prices increase trades elasticity to distance, but that the economic effect is small. We also find that the effect is more pronounced for trade within global production networks, and less large for goods shipped by air.

Global Value Chains and the Transmission of Business Cycle Shocks

The collapse of trade during the great recession of 2008–2009 has raised the question of whether the rise of global value chains (GVCs) has increased or accelerated the international transmission of business cycle shocks. In this paper, we empirically investigate two channels through which a country’s integration into GVCs may increase the income elasticity of its exports. First, GVCs may simply be concentrated in sectors that are more sensitive to external income fluctuations (composition effect). Alternatively, there may be characteristics that are inherent to GVCs that trigger a faster and more amplified propagation of business cycle shocks (supply chain effect). Using trade data from the People’s Republic of China, we find supporting evidence for the composition effect. However, we find no evidence that trade within GVCs have an intrinsically higher income elasticity than regular trade.

Wage disparities in China: an analysis by firm types

This paper investigates the evolution of interprovincial wage inequality and the causes behind its increase over the last two decades. We focus more specifically on the impact of export-led-market reforms on wages disparities within and between five firm types in China. When measured with the GE(1) index, overall wage inequality among Chinese provinces increased by 50% between 1993 and 2007, most notably during the early 1990s as China accelerated its integration into the world economy. The inequality analysis by firm type suggests that increased international competition has had a large impact on wage inequality among domestic firms but almost none on inequality among foreign firms. The panel analysis conducted in this paper also suggests that factors enhancing labor productivity such as larger capital stock endowment per worker and better infrastructure endowment have a greater impact on wage inequality than an increase in economic integration, particularly for domestic firms located in the interior region.