Structural Adjustments In Production And International Trade: Theory And Evidence From China

In this paper, we firstly document the patterns of structural adjustments in Chinesemanufacturing production and export using a firm level data from China. We findproduction became more capital intensive while export became more laborintensivefrom1999to2007: the fraction of exporters and the proportion of outputexported increased for labor intensive industries and vice versa for capital intensiveindustries. To explain these patterns, we unify existing major international trade theoriesby embeddingMelitz (2003) model of heterogeneous firm into DFS model of continuousRicardian and Heckscher-Ohlin (Dornbusch,Fischer and Samuelson1977,1980). Wediscuss the equilibrium patterns of production and international trade. We also find thenumerical solution of the model and analyze other equilibrium properties. Then we docomparative statics to study the effects of trade liberalization, capital deepening andtechnology upgrading on production and international trade.