The Impact Of Increasing Labor Costs On China’s Manufacturing Export

With the rapid development of international trade, China’s manufacturing export is sharply increased by low cost advantage. Manufacturing export is sensitive to labor cost due to low cost advantage, but improve the quality of the industry also make it decreased sensitivity to labor costs. There has been universal trend of rising labor costs in many countries, the issue about the relationship between labor costs and export has been discussed in the field of international economics theory.Many scholars have been made research about the relationship between labor costs and exports from both theoretical and empirical aspects, and then the theories have been formatted in the different stages. Classical trade theory, neo-classical trade theory and new trade theory gradually relax the assumption to explain why the international trade happened, and illustrate the effect of comparative advantage on export in different trade model. According to international theory and the relevant literature, combined with China’s reality, the thesis think that China’s manufacturing export is affected by comparative advantage, technology and economies of scale. In this thesis, the proxy of comparative advantage is labor costs, unit labor costs, fixed asset investment, and foreign direct investment in manufacturing. The proxy of technology is labor productivity. The proxy of economic scale is per capital GDP. The increasing labor cost have positive or negative effect on the development of China’s manufacturing export.We estimate the effects of labor costs on export of manufacture based on the provincial panel data of China from 2001-2012. The GMM method, a two-step system developed by Bulundell and Bond, enables us to account for endogeneity and unobserved, time-invariant factors. Our results suggest that:The impact of increasing labor costs on China’s manufacturing export is not significant. From the national level, the rising labor costs have "Forced effect" on China’s manufacturing export. From specific regions, the role of rising labor costs in manufacturing export is not clear. That means the impact on manufacturing export is not significant in the east and the west, but it has positive impact in the middle;No matter from the national level or local level, the labor productivity has a significant positive effect on export of manufacturing. The degree of this labor productivity positive effect is vary by regions, the largest in eastern and the minimal in western.No matter from the national level or regional level, the impact of increasing unit labor cost on manufacturing export is significantly negative. The export of China’s manufacturing industry will be reduced with the increasing unit labor costs. The eastern region will be suffered the most serious impact.This empirical result can provide the appropriate suggestion when the local government establishes labor wage policy. When raising or lowering the wage of workers in manufacturing, the local government needs to take consideration of different characteristics and the development stage of local manufacturing in order to reach win-win.