Study On The Impact Of FDI On The Export Sophistication Of China

Foreign direct investment into China has increased rapidly since China’s entry into the world trade organization.In terms of accepting FDI,China ranked first in developing countries in 2003 according to the WTO.FDI has always been an important driving force of economic development in China,but trade protectionism aggravated after the outbreak of the financial crisis and the FDI has slowed down.Besides,China’s trade environment has deteriorated.Hence,in recent years,with the deepening of international division of labor and the rapid changes in the international environment,many scholars realized that the real concern of a long-term economic growth is not how much it exports,but the quality of exports and technical structure.Therefore the export sophistication problems get more and more attention.It can be used to measure the total technological complexity of the products measure the export products,industries or the exporters’ technology content of total exports.The higher the export sophistication,the higher the level of export technology.But FDI usually impact China’s export in the way of processing trade and hence export sophistication of China may be overvalued.So whether FDI have an impact on China’s export sophistication and how it works is the focus of the paper.In this context,from the perspective of the global value chain,this paper based on the value chain of goods examines the effection of FDI on China export sophistication.Firstly this paper combs the existing literature and theory,introduces four methods of calculating the export sophistication and analyzes the current situation of China’s export sophistication.Secondly,this paper introduces the influence mechanism of FDI on the export sophistication of a country on the basis of relevant theoretical framework.Further more this paper uses the product trade data of BEC classification and expands the product export sophistication formula based on Hausmann(2005).Then calculates the export sophistication of intermediates and final products of China and China to the United States,Japan,Korea,Hong Kong,ASEAN and EU and so on 41 countries and region by using gravity model.The product trade data of BEC classification are further developed and expanded on the basis of Hausmann(2005)product complexity calculation formula,the paper calculates the export sophistication of intermediate and final products of China and to Japan,Korea,Hong Kong,ASEAN and EU respectively.We adopts the gravity model,from the view of the benchmark model and export sophistication model,and makes FDI flow and stock as the explanatory variable.Then the trade data of China and 41 major partner countries are used to analyze the impact of FDI to the export sophistication of China in the terms of scale and the mechanical industry and we get the following conclusions:FDI has a significant inhibitory effect on China’s total exports of intermediate goods and export sophistication and has a certain role in promoting the final goods.In Chinese machinery industry,the empirical results show that FDI stock and flow have significant inhibitory effect on the export volume and export sophistication,but the effect on machinery final goods is uncertain.After further subdivision,it is found that FDI has a significant inhibitory effect on the export sophistication of mechanical capital goods although it can promote the expansion of its export volume.Besides,FDI has shown some inhibition effect on export volume and export sophistication of China’s mechanical consumer goods.In addition,compared with the FDI flow,the exports of China’s mechanical final products have a greater correlation with FDI stock.In conclusion,China’s purpose of introducing FDI to promote the domestic production technology is not fully realized,which requires the Chinese government to enhance the efficiency of FDI from the macro-level,industry and micro-level,and thus truly make FDI play greater role on the improvement of Chinese industry technical level.