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Trade and Economic Regimes
Friday, Jan. 4, 2019
8:00 AM - 10:00 AM
Chinese Economists Society
Kennesaw State University
The Spillover Effect of Export Processing Zones
Chinese local governments have established many Export Processing Zones (EPZs) to support the export of firms in pillar industries, or industries with local competitive advantage. We study the spillover effects of an EPZ on the adjacent firms using difference-in-difference approach. We analyze a sample of Chinese firms located in the 42 Chinese cities with their first EPZs being founded during the period of 2000–2005. Our study shows that EPZs generate a positive spillover effect to all the companies located outside the EPZs but within the same city. The magnitude of spillover effect depends on the distance between a firm and its nearest EPZ. The spillover effect is larger for firms in the pillar industries than the non-pillar industries. EPZs designed to promote high-tech industries also has larger spillover effects.
Services Development and Comparative Advantage in Manufacturing
Most manufacturing activities use inputs from the financial and business services sectors. But these services sectors also compete for resources with manufacturing activities, provoking concerns about de-industrialization – financial services in industrial countries like the United States and United Kingdom, and business services in developing countries like India and the Philippines. This paper examines the implications of services development for the export performance of manufacturing sectors. We develop a methodology to quantify the indirect role of services in international trade in goods and construct new measures of revealed comparative advantage based on domestic value added in gross exports. We show that the development of financial and business services enhances the revealed comparative advantage of manufacturing sectors that use these services intensively but not of other manufacturing sectors. We also find that a country can partially overcome the handicap of an underdeveloped domestic services sector by relying more on imported services inputs. Thus, lower services trade barriers in developing countries can help to promote their manufacturing exports.
Does VAT Rebate Policy Prompt the Export Performance of Mechanical Products?
In this paper, we build a simple theoretical model to explore the economic effect of the adjustment of VAT rebate policy. We find that, if foreign aggregate demands remain basically stable, raising VAT rebate rate may decrease the price of export products and, further reduces the export volume of export products. To corroborate the conclusion drawn from theoretical model, this paper uses the data of mechanical export products from China and tests the economic effect of the adjustment of VAT rebate policy in January 2015 on the export volume of mechanical products by using the Propensity Score Matching. We find that the adjustment of tax policy significantly decreases the export volume of mechanical products. This result provides us a different perspective to understand the economic effects of VAT rebate policy.
Global Value Chains, Firms, and Wage Inequality: Evidence from China
How does participating or upgrading in the global value chains (GVCs) affect wage inequality between skilled and unskilled labor within firms? In this paper, we develop a trade model of heterogeneous firms with intermediate trade and various skill inputs, in which we apply the fair wage hypothesis to predict changes in the wage premium as a result of participating or upgrading in GVCs. The model predicts that increasing participation in GVCs, as measured by the share of foreign value-added content in exports (FVAR), improves a firm's profits and amplifies the wage inequality between skilled and unskilled labor. Moreover, moving to upstream sectors in GVCs, as measured by the exporting varieties' upstreamness (or average distance from final use), raises a firm's wage premium by increasing the productivity of skilled workers. Using detail Chinese firm-level data from 2000 to 2006, we develop a Mincer-type empirical model to study the wage premium changes associated with FVAR and upstreamness. We find robust empirical evidence that China's FVAR is positively associated with skill wage premium within firms. We also observe that Chinese firms with higher upstreamness in GVCs tend to have larger wage inequality with more skilled workforces.