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

82 Pages Posted: 22 Dec 2015

See all articles by Hiau Looi Kee

Hiau Looi Kee

World Bank - Development Research Group (DECRG)

Heiwai Tang

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); The University of Hong Kong - Faculty of Business and Economics; CESIfo; Kiel Institute for the World Economy

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Date Written: November 2015

Abstract

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.

Keywords: firm heterogeneity, domestic value added, value added trade, China, global value chains, trade liberalization, FDI liberalization

JEL Classification: F100, F140

Suggested Citation

Kee, Hiau Looi and Tang, Heiwai, Domestic Value Added in Exports: Theory and Firm Evidence from China (November 2015). CESifo Working Paper Series No. 5614, Available at SSRN: https://ssrn.com/abstract=2706451

Hiau Looi Kee

World Bank - Development Research Group (DECRG) ( email )

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Heiwai Tang (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

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