Study On Comparative Advantages Of Manufacturing Industries Between Henan Province And The Coastal Areas Of China

From the sub-prime mortgage crisis in2008, the economic situation of China is no good.Renminbi has been rising, export situation has been deteriorating, wages and estates prices have beenincreasing, and labor shortages generally have been happening. Economists worry that the comparativeadvantages of Chinese manufacturing industries are disappearing. However, along with the GDP per capitarising and the institutional reforming, the domestic markets are greater than before. Moreover, in the inlandareas, the labors advantages are emerging. Our question is, lower wages mean comparative advantages?This paper discusses not only wages but also marginal productivity of labor (MPL). We think MPL’s is moreimportant than wages. We defined relative cost of labor (RCL) equals wages divided by MPL, which canshow the comparative advantages of one district’s one industry. Based on Chinese Industrial EnterprisesDatabase, Chinese Yearbooks and Henan Province’s Yearbooks, which include the data set of subdivisionindustries of Henan province’s and all other provinces’ manufacturing industries, this paper utilizes SFAestimated the MPLand RCLof the subdivision industries of Henan province’s and all other provinces’manufacturing industries.The results show, the light industries of Henan province have the comparative advantages relativeto other areas industries. However, the situations are not so good because the heavy and chemical industriesare too higher. This situation hinders the labor resource advantage’s developing, and makes that labor forceparticipation rate is low. This situation makes surplus labor forces have to immigrate into other areas tosearch work. If this situation continuously exists, the income per capita is going to be lower and lower andthe market size are going to be smaller and smaller. The long economic growth rate tends to halt.At first, According to the ratio of capital on labor, we classify Henan province’s manufacturingindustries into six kinds: high labor flight, medium labor flight, and low labor flight, and high capital flight,medium capital flight, and low capital flight.The results show the relationship between the ratio of capital/labor and RCLis positive. So, thehigher the ratio of capital/labor of one industry is, the lower the relative cost of labor of it is. Thisdemonstrates that the marginal productivity of labor will be increasing, and the comparative advantages of labor force will be rising, if more investments pour into Henan province.Moreover, by decomposed the TFPG, we know that the relationship between TFPG and RCLispositive. This means the higher the TFPG is, the higher RCLis. And this technological progress belongs tolabor-augmenting or capital-saving, but not capital-augmenting or labor-saving. This situation justidentified with the comparative advantages of Henan province. By decomposed the TFPG, we obtainedtechnical progress change, technical efficiency change, scale efficiency change and allocation efficiencychange, which all exert positive effective on the RCL, in which, scale efficiency and allocation efficiencyeffect are bigger. This situations show the scale of manufacturing enterprises is too small, and the marketenvironment should be better than before in Henan province. Besides, among the factors’ effects of MPL,the ratio of capital and labor is positive, the TFPG and its decomposed factors are negative. This verifiesonce again that the comparative advantages will be augmenting along with more investment joined inHenan province.For more extensively discusses the position of Henan province within the central and westernareas, this paper studied the comparative advantages of every region’s industries. The results show that thecentral and western areas have the comparative advantages of labor force. If we observe the industrytransfer only from wages’ difference between areas, seemingly the central areas have the comparativeadvantages with almost all industries. Really, the MPLis lower than other areas and which makes thecomparative advantages decreased because of the lower ratio of capital/labor. The results show also thatmany light industries have the comparative advantages in Henan province. However, some labor-intensiveindustries in coastal provinces are not lost thoroughly their advantages because of their accumulating vastcapital and technological leading. This is the original meanings of the comparative advantages.This paper puts forward a new sight based on RLC to discuss Henan receiving industries from thecoastal areas. We bring forward concrete details of industries that Henan province can receive from thecoastal areas.