Academic journal article Management International Review

The Trade Development Path and Export Spillovers in China: A Missing Link?

Academic journal article Management International Review

The Trade Development Path and Export Spillovers in China: A Missing Link?

Article excerpt

Abstract and Key Results

* A two-step modelling strategy is applied to a panel of 5,861 foreign-invested and 7,697 indigenous Chinese firms for the period 1998-2001 to investigate whether export spillovers may represent a mechanism underpinning Dunning's Trade Development Path hypothesis.

* Such spillovers are found, and the results emphasize the importance of a wide spectrum of spillover channels involving labour mobility, spatial agglomeration, technological imitation and the diffusion of exporting experience.

* Multinational enterprises in China positively affect local Chinese firms' exports through various spillover channels, and inward FDI brings significant, indirect spillovers.

Key Words

Export Spillovers, International Trade, Multinational Enterprise, China

Introduction

The study of economic development has often been preoccupied with the relation between inward foreign direct investment (FDI) and subsequent exporting (Dunning et al. 2001). Such a preoccupation emphasizes the role of FDI in technology transfer. Thus, inward FDI provides the capital and technology that directly facilitates exporting from the host country. This academic preoccupation has been matched by the focus of host governments on the direct link between inward FDI and exporting. For example, in the 1980s and 1990s, the Chinese government became concerned that multinational enterprises (MNEs) were seeking access to the attractive Chinese market rather than the promised technological development in, and exporting from, the host country. The Chinese government, therefore, insisted that clauses be added to joint venture contracts requiring minimum levels of exporting and local sourcing of inputs (Buck et al. 2000), i.e., it sought to promote the direct link between FDI, exports and reduced imports.

However, the indirect impacts of inward FDI on indigenous firms' exports through various externalities called "spillovers" are less commonly noted in the literature (though their existence is recognized in Dunning 2003a). Spillovers are identified as dynamic information externalities, and arise from both intended and unintended communications between economic agents over time (David/Rosenbloom 1990). Only limited empirical evidence on export spillovers exists. For example, Aitken et al. (1997), and Kokko et al. (2001) tested for export spillovers in Mexico and Uruguay at a firm level, and found evidence of such positive exporting externalities, i.e., exporting benefits may arise from a contract that are also enjoyed by individuals or firms who are not themselves party to the contract. For example, a foreign MNE may contract to invest in a local Chinese firm, but other Chinese firms may benefit, too, in exporting terms. A recent study by Greenaway et al. (2004) also shows that the presence of MNEs had positive spillover effects on the export performance of UK firms. However, such studies have rarely been applied to transition economies.

As the largest recipient of inward FDI, China has achieved phenomenal economic growth since 1979, accompanied by rapid export expansion as well as significant changes in terms of the patterns of production and exporting. China accounted for a mere 0.75 percent of total world exports in 1978, but by 2004, this share had increased to 6.46 percent, moving China from the 32nd to the third largest trading nation in the world (WTO 2005).

There is little formal evidence on the factors encouraging indigenous Chinese firms to export, or on the main determinants of export performance at a firm level. Lardy (1994) noted the relative absence of reforms in the State-owned sector and their importance to exporting. Naughton (1996) found that, while Chinese trade structure had shifted to reflect relative labour abundance, it was also found that there were significant limits to trade openness, with many non-tariff barriers still being applied to agricultural goods. …

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