Endowment Structure, Industry Dynamics and Domestic Supply Chains in China-Theory and Evidence

51 Pages Posted: 6 Sep 2018 Last revised: 23 Feb 2020

See all articles by Jim Huangnan Shen

Jim Huangnan Shen

University of London, School of Oriental and African Studies (SOAS), Economics; Center for International Development, Harvard Kennedy School, Harvard University

Leilei Shen

Kansas State University - Department of Economics

Jun Zhang

Fudan University - China Center for Economic Studies (CCES)

Date Written: August 26, 2018

Abstract

This paper proposes a theoretical model and shows that the comparative advantage of China’s factor endowment allows firms specializing in the midstream stage to gain at least as much as firms that specialize in the two ends of the supply chain (capital-intensive stage and labour-intensive stage) in terms of labour productivity and profitability, if and only if their endowment structure is more consistent with a whole economy and use intermediate level of capital intensity. The empirical results are consistent with the theory’s predictions. Our findings on China’s industry supply chain production patterns provide a new angle on the division of gains in the vertical production network driven by the endowment structure. This could have far-reaching implications for the industrial development of other middle-income countries.

Keywords: Comparative Advantage, Factor Endowment Structure, labour-intensive, capital-intensive, industry chains, labour productivity, division of the gains

JEL Classification: F12, F23, F60, L14

Suggested Citation

Shen, Jim Huangnan and Shen, Leilei and Zhang, Jun, Endowment Structure, Industry Dynamics and Domestic Supply Chains in China-Theory and Evidence (August 26, 2018). Available at SSRN: https://ssrn.com/abstract=3239089 or http://dx.doi.org/10.2139/ssrn.3239089

Jim Huangnan Shen (Contact Author)

University of London, School of Oriental and African Studies (SOAS), Economics ( email )

London, WC1E 7HU
United Kingdom

Center for International Development, Harvard Kennedy School, Harvard University ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Leilei Shen

Kansas State University - Department of Economics ( email )

Manhattan, KS 66506-4001
United States

Jun Zhang

Fudan University - China Center for Economic Studies (CCES) ( email )

China

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