Empirical Analyses On China's Trade Cost And Its Effects

Although trade cost restricts equalization of goods and factor's price and reduces trade volume in the traditional trade theories, it doesn't change determinants of traditional trade pattern-comparative advantage. So, in the traditional trade theories, trade cost is almost ignored. But with the developments and changes of international trade and with the innovation of trade theories, more and more scholars realize the importance of trade cost. Trade cost is one of the core concepts in the New Trade Theory, the New Economic Geography, and the New-New Trade Theory.Owing to the progress of science and technology, especially the drastic developments of transportation and communication technology, trade cost based on distance is really reduced so much that many people exclaim "the death of distance". But even today in the economic globalization, international trade is perplexed by trade cost, which shouldn't be ignored. So it has important theoretical significance to study trade cost and its effects comprehensively, deeply and systematically.Since reform and opening up, China has been merged into the integrative system of global economy, and China has transformed from small trade country in the early age of reform and opening up into big trade country in the world. As a developing country with rapid developments, China's opening degree has been the focus of attention at home and abroad. Traditionally, indirect indexes such as foreign trade dependence and capital flow et al are usually used to measure China's opening degree. These indexes are very convenient and simple, but they always conceal the impact of specific factors. If China's trade cost can be measured, it not only provides direct evidences for China's gradually opening up, but also it's of importance to understand the pattern of China's participation in the international division and specialization. Furthermore, Empirical analysis on determinants of trade cost and study on effects of trade cost, such as home market effects of trade cost, effects of trade cost on location choice of FDI and effects of trade cost on productivity will provide abundant policy implication for China's reform and opening up and economic developments.Especially in the period of economic crisis, it may put forward policy suggestions for overcoming the influence of economic crisis to study on trade cost and its effects.The paper is consisted of seven chapters.Chapterâ… :Introduction. The main content is to introduce the significance of the research, related research, the paper's structure, research methods, and innovations of the paper.Chapterâ…¡:Measurement of trade cost. First of all, it introduces several methods of measuring trade cost and analyses their advantages and disadvantages.On the basis of it, the model of measuring trade cost of this paper is derived. And bilateral trade cost between China and its 15 major trade partners is measured. The results show that the tariff equivalent bilateral trade cost between China and its 15 major trade partners has fell significantly from 1980 to 2007;the annual falling rate is 2.51 per cent. Especially after access to WTO, the trend is accelerated to decline. Subsequently, an empirical analysis on the determinants of China's trade cost is made.The empirical results show that bilateral trade cost is related to distance, institute, infrastructures and their common free trade areas. At last, it describes the measures to reduce trade cost in China.Chapterâ…¢:Effects of trade cost on International Trade. First, on the basis of the model, it analyses the effects of trade cost on trade volume. The results show that the decreasing of trade cost promotes the growth of China's foreign trade. Secondly, it studies effects of trade cost on vertical specialization trade by a theoretical model.The decreasing of trade-cost-impels non-linear growth of vertical specialization-trade. As the number of production stages increases, the magnification effect of trade cots on vertical specialization trade increases.At last it makes an empirical analysis using China's data. The empirical analysis is consistent with theoretical analysis; and there exists Granger causality relationship between vertical specialization trade and trade cost in China.Chapterâ…£:Home Market Effects of trade cost. First, by the means of changing some basic assumptions in the traditional model of Home Market Effects, Home Market Effects still emerge.And higher trade cost attenuates Home Market Effects. Secondly, the paper measures Home Market Effects between China and its major trade partners' bilateral trade using China's data from 1992 to 2008.The results show that in the world of increasing scale and trade cost, Home Market Effects exist in five products among ten products; and in thirty-five manufactures, there are ten industrial products which have Home Market Effects. Therefore, Home Market Effect is becoming one of the most important sources of comparative advantages which cause to export from China to other countries. At last, the paper compares Home Market Effects between the period of 1992 to 2001 and the period of 2002 to 2008.The comparison shows that there exist Home Market Effects in six industrial products during the period of 1992 to 2001,but after access to WTO in 2001,there exist Home Market Effects in 15 industrial products during the 2002 to 2008, the lower trade cost accentuates Home Market Effects in China, which is in consistent with theoretical analysis.Chapterâ…¤:Effects of trade cost on location choice of EDI.First, from the perspective of the New Economic Geography, the text analyses theoretically the effects of trade cost on location choice of FDI. The changes of trade cost will influence the force of convergence and divergence, which will affect the location choice of FDI.In the model of vertical multinational firms, from the point view of developing countries, the force of convergence comes form the factor endowment differences between home country and host country; and the declining of trade cost will reinforce the force of convergence. Secondly, the empirical analysis based on China's data shows that the declining of trade cost is one of location factors of FDI choosing China. At last, the chapter analyses the reason why quantity of FDI in central and western China is small in the perspective of trade cost. It is mainly because trade cost of central and western China is higher than that of eastern China. Owing to remote geographic location, transportation cost is higher than that of eastern China; transportation and information cost is higher than that of eastern China due to imperfect infrastructures;and higher institutional costs increase investors'risk and uncertainty.Chapter VI:Effects of trade cost on Productivity. First, the chapter studies theoretically the micro-mechanism of the effects of trade cost on industrial productivity. Trade cost promotes the growth of industrial productivity by two ways.One way is intra-industrial reallocation effects.The declining of trade cost leads to export expansion, low-productive firms exit (market selection effect) and the resource is reallocated toward higher-productive firms (market share effect), therefore the industrial productivity increases. Another way is technical progress effects of firms. Trade cost may influence the technique choices of firms;more firms will choose High-Tec technology when trade cost is declining. Technical progress in firms and spillover in industry promote the growth of industrial productivity. Secondly, the chapter makes a co-integration analysis using Chinese related data from 1980 to 2007.The empirical results show that the co-integration relationship exists between trade and total factor productivity. The declining of trade cost really promotes the growth of total factor productivity.Chapter VII:Conclusions. The paper makes some basic research conclusions and provides the corresponding policy implications and suggestions. In the period of economic crisis, it's important to reduce trade cost to promote Chinese foreign trade development, especially establishing flexible Free Trade Areas.Under the condition of increasing and trade cost, domestic demand and export may not replace each other, instead they may promote each other. Enormous home markets can be one of sources of international trade advantages.Therefore, Chinese trade policy should continue to emphasize external market, but also pay attention to developing and cultivating home markets.Reducing trade cost can accentuate Home Market Effects.