Download this Paper Open PDF in Browser

China's Local Comparative Advantage

33 Pages Posted: 23 Apr 2008  

James Harrigan

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Haiyan Deng

The Conference Board

Date Written: April 2008

Abstract

China's trade pattern is influenced not just by its overall comparative advantage in labor intensive goods but also by geography. We use two variants of the Eaton-Kortum (2002) model to study China's local comparative advantage. The theory predicts that China's share of export markets should grow most rapidly where China's share is initially large. A corollary is that exporters that have a big market share where China's share is initially large should see the largest fall in their market shares. These market share change predictions are strongly supported in the data from 1996 to 2006. We also show theoretically that since trade costs are proportional to weight rather than value, relative distance affects local comparative advantage as well as the overall volume of trade. The model predicts that China has a comparative advantage in heavy goods in nearby markets, and lighter goods in more distant markets. This theory motivates a simple empirical prediction: within a product, China's export unit values should be increasing in distance. We find strong support for this effect in our empirical analysis on product-level Chinese exports in 2006.

Suggested Citation

Harrigan, James and Deng, Haiyan, China's Local Comparative Advantage (April 2008). NBER Working Paper No. w13963. Available at SSRN: https://ssrn.com/abstract=1122751

James Harrigan (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Haiyan Deng

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States

Paper statistics

Downloads
45
Abstract Views
972