China's Trade Costs And Variations Of Sectoral Productivities From The Perspective Of Industrial Linkages

Since the Reform and Opening up,China has made the best of its advantages such as cheaper labor force and land,so it has attracted many foreign firms from developed economies to invest in building factories in its homeland.However,because of the increasing wage resulted by the development of economy,China is gradually losing its traditional advantages to fuel international trade.In the meantime,as the result of limited ability to innovate,China is still around the low-end links of the Global Value Chain.To maintain the driving force of international trade to Chinese economy,China should aim at boosting productivities,finding opportunities in links of the Global Value Chain where value-added is higher.In this context,it is of practical meaning to discuss the welfare effects of the changes in sectoral productivities.Based on the general equilibrium model of Caliendo and Parro(2015),this paper establishes a multi-country multi-sector quantitative international trade model with Input-Output Linkages;Besides,with the WIOD bilateral trade flow data from 2000 to 2014,we calibrate relative productivities based on the regressions of the gravity equation.Finally,we take China as the research object,conducting counterfactual analyses to estimate the impact of technological progress,trade costs and changes in industrial linkages on real wages and gains from trade.We find:(1)From 2000 to 2014,China's comparative advantage sectors and comparative disadvantage sectors have changed.(2)Holding China's total technological progress rate unchanged,China's gains from trade will be larger if we impose technological shock on China's comparative advantage sectors.(Compared to the circumstance where the technological shock is imposed on all sectors of China or China's comparative disadvantage sectors).In particular,if we impose 20%of technological progress on China's comparative advantage sectors,the real purchasing power of Chinese consumers will increase by 53.29%.(3)Both the reduction of trade costs and the existence of Input-Output Relationships can improve China's gains from international trade:if China becomes an autarky economy,it will suffer 39.06%of welfare loss;If we shut down Input-Output Linkages,the real purchasing power of Chinese consumers will deteriorate by 2.90%.Therefore,we believe that while improving the level of opening up,China should also increase the investments in R&D,mainly focus on increasing the productivity of China's comparative advantage sectors and pushing their goods to world markets,to gain more from international trade.