China's Export Composition And Economic Growth

The traditional research so far has mostly investigated the link between export volumes and economic growth and productivity. Most papers have examined the direction of causality between exports growth and economic growth. The hypothesis is that export expansion increases productivity and therefore leads to economic growth through scale economies and externality resulting from expanded international markets. On the other side, more recent research has examined the structural change in export composition as an important source of a country economic growth rather the export volume. This research suggests that the volume of exports does not play a big role as a predictor of a country's future economic growth. The idea that a country's mix of exports can have significant implications on its subsequent economic growth has been given more attention in economic development theories. Hausmann, Hwang and Rodrik (2007) claim that countries become what they produce; rich countries export more sophisticated products, while poor countries export products that are associated with poor countries. It has been observed that China's export basket is much more sophisticated than what one would assume based on China's overall income. This paper is trying to demonstrate this proposition formally and add some empirical evidence to it. We will discuss future policy implications and outlook for the Chinese economy.