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Trade, Productivity, and Firm Capabilities in China's Manufacturing Sector (CHINA)
Start date: Feb 1, 2010, End date: Jan 31, 2016 PROJECT  FINISHED 

China s economy has expanded at breakneck speed to become the 3rd largest trading country in the world and the largest recipient of foreign direct investment (FDI). Entry into the WTO in 2001 was a landmark event in this ongoing process and I propose to study several channels through which it spurred China s industrial development. Crucially, I will take an integrated view of the different ways in which Chinese and Western firms interact: through trade flows, as suppliers or competitors, FDI, or knowledge transfers. First, I investigate the existence and magnitude of a causal link from the trade reforms to productivity growth. Second, I look for evidence of capability upgrading, such as increased production efficiency, an ability to produce higher quality products, or introduce new products by innovating. Third, I study the mechanisms for the impact of trade and FDI on local firms, in particular assessing the relative importance of increased market competition and the transfer of know-how from foreign firms. For this analysis, I draw heavily on a unique data set. Information on the universe of Chinese manufacturing firms is being linked to the universe of Chinese trade transactions. These are unique research tools on their own, but as a linked data set, the only comparable one in the world is for the U.S. economy. The Chinese data has the advantage to contain detailed information on FDI, distinguishes between ordinary and processing trade, and contains information on innovation, such as R&D and sales of new goods. Answering the above questions is important for other developing countries wanting to learn from China s experience and for Western firms assessing how quickly Chinese firms will become viable suppliers of sophisticated inputs or direct competitors. By estimating models that are explicitly derived from new theories, I advance the literature at the interaction of international and development economics, industrial organization, economic geography.
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