Research On The Impacting Of Intra-product Trade On China's Manufacturing Industry Agglomeration

From the 1970s, with the accelerated economic globalization and the development of technology revolution, the level of international specialization has extended to products in process from finished goods, which result in the growing of intra-product specialization and intra-product trade based on it. This form of trade based on the fragmentation of manufacturing process makes the original production split to different stages of production and scattered in different countries and regions in the production and production process according to the assignment of resources, production technologies, costs of transactions in different countries and regions. The continuously expanding of intra-product trade makes the economic environment of manufacturing industry undergone great changes therefore will change the internal mechanisms for its being. International Economics believes that the driving force of industry agglomeration is still cost. So this paper will focus on the formation of agglomeration under the tradeoff between scale economy and service link and gives an empirical test of China's manufacturing industry. This analyze will broaden and enrich our knowledge of industry agglomeration and also provide important consultation for the local government in decision-making.This paper makes a thorough study of the impacts of intra-product trade on manufacturing industry agglomeration from two aspects:theory and the empirical analysis. In theoretical aspect, it develops a new economic geography model which explained a MNEs'location patterns of fragmented production blocks, and then it described how the formation of international production/distribution networks of MNEs through FDI and offshore outsourcing fundamentally changed the pattern of production location. Lastly it described the effects of service link on industry agglomeration. In empirical aspect, this study first analyzed the present situation of intra-product trade of China. And then it estimated the level of vertical specialization of China's different industry by VSS method. Also, it described the status and problems of processing trade as typical form of intra-product trade with provincial data. Lastly it conducts two empirical panel-data analyses by GMM method using both the data of the China's manufacturing industry agglomeration and concentration.Followings are the main conclusions of this paper.(1)The integrated production process is divided into different production processes by the developments of intra-product trade and the processes can be scattered in different countries and regions by the principle of comparative advantage which can result in lower production cost. This is a new trend that the industry diffusion and agglomeration concur and the global production activities are dispersed accompanied with the agglomeration in a few countries. In the South, the patterns of agglomeration are decided by the MNEs'productivity and sect oral characteristics. First, in component-intensive sectors, firms do not integrate high-productivity firms outsource components in the South, and thus a market-based agglomeration may come into being. On the other hand, integration takes place in headquarter intensive sectors. The most productive firms integrate in the South with FDI and in south MNEs oriented agglomerations are easily formed. At the same time, with the deep vertical international specialization and a roaring intra-product trade, the service link becomes more and more important. The areas which can reduce most of the service cost with appropriate policies can attract more different businesses to make centralization.(2)When China becomes to be the World's Manufacture, along with high degree of vertical specialization and developments of processing trade, the part of intermediate trade is growing and structure of it changes. The developments if intra-product trade in China are imbalanced both in industry level and region level. Meanwhile the main players in intra-product trade game are MNEs and Chinese enterprises'are passive and subordinate can their innovation capabilities need to be improved.(3)In recent years China's concentration level of manufacturing industry have been continuously rising while the region's specialization going down. This illustrates the trend of China's industry agglomeration is the diversion of industries from in some regions to form new combinations. In general, China's is now undergoing a sates of high industry agglomeration and low region's specialization.(4)There is an internal relationship between the unbalanced developments of intra-product trade and industry agglomeration in China. One reason of China's high industry agglomeration but low region's specialization is the rapid growth of inra-product trade in recent years. The perfect intermediate markets growing from vertical specialization attracts more same industries to enter to improve the industry integration in this district and disintegration in other areas. In general, trade can lead to a reengineering of industry location in a country making some sectors to disperse and some concentrate.