Research On Vertical Specialization And Technical Structure Of China’s Manufacturing Exports

Since the mid-1990s, with the advance of information technology as well as a decline in the costs of communication and coordination, international vertical specialization is becoming increasingly popular. Production process originally focused in a country is vertically divided into multiple activities, tasks, or stages, and horizontally located in countries and regions with different comparative advantages. A new division of labor pattern has brought a profound change in the world production and trade patterns. From 1970 to 2010, the proportion of the G7 countries in the world’s manufacturing output fell from 71% to 46%, while at the same time the proportion of China rose by 18%; the proportion of the G7 countries in the world’s total exports in 1991 was up to 52%, while that has fallen to 45% by 2000, and further down to 34% in 2010. Vertical specialization, on the other hand, is also thought to bolster cross-border flows of management skills and production know-how. This is deemed to be able to promote the industrialization of developing countries.Since reform and opening up, China, with the advantages in the labor endowments, and by undertaking labor-intensive industries or products’ manufacturing and processing activities transferred from developed countries, has been actively integrating into the vertical specialization system dominated by MNEs, and created the miracle of sustained and rapid growth of export trade:according to customs statistics, China’s export value has rapidly climbed from ＄9.75 billion in 1978 to $2.21002 trillion in 2013 with the growth rate reaching 16.76%; China surpassed Germany in 2009 and ranked the first export trading country. China has become a veritable trading power. Along with the rapid growth of total exports, the technical content and technical level of China’s export products are steadily growing: in terms of the commodities composition of export, the leading products of China’s exports have been gradually switching from labor-intensive products into capital and technology-intensive products; On the other hand, China’s export products range is continuously widening and almost spread all over trading sectors. When compared with G3 countries (the United States, the European Union and Japan), product varieties G3 countries exported while china did not decreased from 101 to 83 from 1996 to 2005, respectively 2.44% and 1.97% of the total categories. The export structure of China and developed countries is more and more converging. China seems to have realized the upgrading of technical structure of exports. But in the context of international vertical specialization, can these changes really prove that the technical level of the China’s export products is improving? Does China’s technical structure of exports catch up with the developed countries? Is the optimization of China’s export structure caused by the change of comparative advantage or does it merely reflect the high sophistication of imported intermediate products? On the other hand, vertical specialization is deemed to have a profound impact on a country’s economic development. Then how does participating in vertical specialization have an effect on the technical structure of a country’s exports? And through what mechanisms and channels does participating in vertical specialization affect upgrading technical structure of a country’s exports? These are questions to be explained and solved.Vertical specialization and technical structure of exports have been the center of research. The literature on vertical specialization has been mainly focusing on its motivations, measures, and effects on productivity, income gap and employment, while the studies on technical structure of exports have extended from early construction of measure indicators to influencing factors. But till now, both theoretical and empirical research seldom involved the effect of vertical specialization on upgrading of technical structure of a country’s exports, In view of this, this paper combines theoretical analysis and empirical analysis, investigates the influencing mechanism of the vertical specialization on technical structure of exports, reveals the heterogeneous improving effects of the vertical specialization on technical structure of exports of countries of different development stages and industries, and gets some instructive conclusions. This helps to accurately grasp the current conditions of technical structure of China’s exports and the influencing channels and degrees of vertical specialization on technical structure of China’s exports, and at the same time helps to formulate policies for China’s transformation of foreign trade development pattern.This paper consists of 6 chapters. The first chapter is introduction, which introduces the background and purposes of this research, definitions of some major concepts, research Ideas and contents, research methods employed as well as main innovations. Chapter 2 is literature review, which mainly synthesizes and reviews the domestic and foreign scholars’ research on vertical specialization and technical structure of export. Chapter 3is the theoretical analysis for the influence of vertical specialization on technical structure of exports, which consists of the mechanism, channels and influencing factors. Chapter 4 is the measurement of vertical specialization and technical structure of exports, in which indicators of vertical specialization and technical structure of exports are constructed based on accounting methods of value-added in trade. It also calculates and analyzes countries’degree of participation in vertical specialization and evolution of technical structure of exports. Chapter 5 is the empirical analysis for the influence of vertical specialization on technical structure of exports, which, based on the empirical model, reveals the promotion effect vertical specialization on technical structure of exports of countries in different development stages and industries. Chapter 6 is conclusions, policies and prospects, which summarizes the full paper’s theoretical and empirical conclusions, puts forward the corresponding policy recommendations, and points out the deficiencies of this study and the direction of further research.The main conclusions of this paper are as follows:First, from the calculations of vertical specialization, the participation degrees of most countries or regions increased from 1995 to 2011. The downstream participation degrees of the developed and developing countries are rather close, but the upstream participation degrees of the two classes diverge greatly. This reflects the different status of the developed countries as contract-issuing party and the developing countries as contractors. As to the developed countries, the participation degree of high-technology industry increases most rapidly, while the developing countries are mainly involved in international division of labor of low and medium-technology industry. Among 17 years the participation degrees, upstream and downstream participation degrees of China’s manufacturing rise to different levels. The growth of participation degree of high-technology industry mainly relies on downstream participation, which demonstrates this industry deepens its dependence on imported intermediates, while the growth of participation degree of low-technology industry stems from upstream participation.Second, export sophistication of all countries and regions fluctuated upward from 1995 to 2011. The developed countries always achieve a higher level of export sophistication while some developing countries such as Lithuania and Indonesia ranked at the bottom, but the export sophistication of developing countries grow more rapidly. Because it is the export sophistication of low-technology industry that increases most rapidly in the developing countries while in the developed countries it is high-technology industry, the technical gap of low-technology industry of the two classes gradually narrows but that of high-technology industry widens. The technical structure of China’s manufacturing exports has been optimized to a certain degree. The manufacturing technical gap between china and the advanced country has been lessening owing to a faster growth rate of china’s export sophistication. But, in contrast, the technical level of China’s manufacturing export is still below the average with the export sophistication ranking in sample countries or regions in a lower position.Third, in a product life cycle model vertical specialization can have an effect on the upgrading of technical structure of a country’s exports through efficiency improvement and technology advance. The empirical results also confirm this conclusion. In comparison with Asian Factory countries, vertical specialization has a greater effect on the upgrading of technical structure of European Factory and North American Factory countries’ exports. While within regional production networks, vertical specialization has a greater effect on that of headquarter economies such as England, the United States, and Japan than factory economies such as Poland, Mexico and China. This is mainly because, on the one hand, lack of high-level management system and cooperation mechanism in Asian Factory, and the Factory leader Japan’s slow industry upgrading, conservative technology transfer all inhibit technology promotion of the entire production network; on the other hand, different division of labor status leads to imbalance of returns.Fourth, vertical specialization only has an effect on the upgrading of technical structure of china’s low-technology manufacturing exports. This shows that the influence that vertical specialization has on technical structure of exports depends not only on the participation degree in division of labor, also it is related to channels and status of participation. Low-technology industry’s "active participation" model and higher GVC position promote technology spillover of division of labor, but medium-technology industry’s "two head out" model and high-technology industry’s heavy reliance on processing trade and foreign-invested enterprises greatly prohibit promotion effect of vertical specialization.Compared with existing literature, the innovative points of this paper can be summarized as the following three:First, constructing a theoretical framework to analyze the influence mechanism of vertical specialization on upgrading of technical structure of a country’s exports. This paper extends Acemoglu et al.(2012), forming a theoretical framework and a theoretical basis for further research in this field.Second, improving the measurement method of technical structure of exports and building a new indicator to avoid "statistical illusion". By using an inter-country input-output table, and based on accounting method of value-added in trade, this paper substitutes domestic value-added in exports for total trade value in Hausmann (2005), in order to deduct the imported intermediate products from exports and obtain more accurate measure of a country’s real technical structure.Third, the empirical results of this paper shows that the influence that vertical specialization has on technical structure of China’s manufacturing exports depends not only on the participation degree in division of labor, also it is related to channels and status of the industry’s participation. Similar research conclusions have not been found in existing literature.