FDI liberalization as a source of comparative advantage in China

Sebastian Claro*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

Two features of China's trade patterns suggest that elements beyond factor abundance explain its export performance. The high penetration in world markets of labor-intensive products has been accompanied by: (i) a high share in exports of productivity-advanced foreign-invested enterprises (FIEs) and (ii) a high penetration of FIEs in labor-intensive sectors. We show that FDI liberalization endogenously introduces Ricardian features to an otherwise standard endowment-based trade model, strengthening China's natural comparative advantage in labor-intensive products. We discuss how capital accumulation, productivity growth, rural-urban migration, incentives for foreign investment, and distortions in financial markets affect this bias.

Original languageEnglish
Pages (from-to)740-753
Number of pages14
JournalReview of Development Economics
Volume13
Issue number4
DOIs
StatePublished - 2009
Externally publishedYes

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