Study On China’s Foreign Trade Development Under The Trendecy Of Fallacy Of Compositon

Relying on the export-oriented growth model based on the labor resources, China’s foreign trade has made a great progress in a favorable global economic environment, becoming the largest exporter in the world. But with the establishment of China’s largest trading nation status and the popularity of export-oriented model in emerging economies, China’s foreign trade development is also vulnerable because of the constraint of fallacy of composition (FOC). Based on the characteristics FOC, this paper studies the healthy and sustainable development of China’s foreign trade under the trend of FOC, mainly addressing the following questions:(1)Study on the formation mechanism and the empirical test on FOC. Firstly, based on three typical features of the foreign trade development in developing countries, namely the popularity of export-led growth model, high degree of the similarity of the export structure, and deteriorating terms of trade, we analyze the formation mechanism of FOC in the framework of Balance-of-Payents Constraint Growth model in case that a number of developing countries apply export-oriented development mode. Secondly, we conduct empirical test on the trend of FOC by three methods from three angles. First, from the perspective of the popularity of export-oriented strategy and the similar export structure of developing countries, based on the panel data of100developing countries, we test the hypothesis of fallacy of composition by the traditional static test method, the correct cross-section correlation, hetero-scedasticity and serial correlation of the Driscoll-Kraay. Second, from the perspective of the trade competition caused by similar export-structure of developing countries, we conduct empirical test the trend of FOC by the method of GMM estimation. Third, from the perspective of the similar export-structure of developing countries affecting the long-run trade performance, we test FOC trend by using the method of panel co-integration.(2) Analyzing China’s foreign trade performance under the tendency of FOC. As China’s foreign trade performance is the result of many factors, whether China’s poor trade performance can be attributed partly to FOC is the first problem needed to be clarified. To this end, the focus test was conducted on the causal relationship between FOC and China’s trade performance, which shows that the China’s terms of trade improvement and the expansion of exports are restricted by FOC. Furthermore, the performance of China’s foreign trade under FOC is analyzed in detail. We also measure the welfare losses due to the worsening of terms of trade in the context of international comparisons.(3) How does China’s foreign trade develop under the tendency of FOC? Three aspects are considered specifically. The first aspect is that the choice of China’s export structure in order to avoid FOC. The empirical test based on the panel data is conducted to show whether the diversification of export structure is favorable in improvement of terms of trade. A further study on China’s export products structure is conducted by the use of export concentration index and diversity index. Finally, realistic choices of diverse export structure are offered based on China’s conditions. The second aspect is that the choice of the diversification of China’s export market structure in order to avoid FOC. FOC is caused by the demand constraints in developed countries, while South-South trade expansion is considered to be an effective way to avoid FOC. By examining and objective evaluation the diversification of China’s export market structure, we identify its problems and provide the direction of improvement. We especially explore the expand export potential and directions between China and ASEAN as well as other large developing countries. The third aspect is to explore how to adjust China’s foreign trade development strategy in order to avoid FOC. We propose the adjusting orientation of foreign trade development strategy based on the large country’s economy. We analyze the inappropriate root of the comparative advantage strategy under the trend of the FOC. According to the characteristics of China’s large economy, we propose the compatible development strategy which not only reflects China’s labor-abundant natural resources, but also avoid the FOC.This paper explores china’s foreign trade development under FOC, seizing another important constraint of China’s foreign trade. From the perspectives of the particularity of large country’s foreign trade development, export diversification, export market diversification, the paper puts forward promoting measures to avoid the FOC and improve the performance of China’s foreign trade, offering a new layout for the optimization of China’s foreign trade development strategy.