Import Trade Structure, International Technology Diffusion And China's Economic Fluctuation

The history of human society has proved that the development of technology has been greatly promoting economic growth around the world. Endogenous economic growth theory which is advocated by Romer and Lucas also regards technology as the ultimate source and drive behind a country's sustainable economic growth. Therefore, how to achieve and maintain technical progress attracts broad attentions. Nowadays, when most countries in the world are implementing more extensive policies of openness and economic globalization, technical progress in a country depends not only on his own research and development (R&D) investment and ability of innovation, but also on other countries'R&D investment, especially his trading partners. International technology diffusion is one of the most effective ways to share the achievements of R&D investment among countries, which is particularly important for developing countries. Hence, the governments of developing countries always take it into account when making economic and trade policies.With the changing international economy and market environment, China's trade structure is gradually changing. Since a country's commodity trade structure, to some extent, reflects its comparative advantage and the position in international division of labor, it greatly affects the direction of international technology diffusion. The structural change in commodity trade, especially the structural change in import implies a change in the intensity of technology diffusion. Therefore, in order to improve China's trade strategy in the new period, it is necessary to analyze the structural change in China' import and its impact on the technical progress in-deep.The ultimate goal of making and improving trade strategy, based on absorbing the benefits of technology diffusion contained in import trade, is to achieve economic growth. The enhancement of labor productivity is the channel through which import trade indirectly stimulates economic growth, which has already come to an agreement in academic circle. Nevertheless, in which way does the technology diffusion effect of import trade enhance domestic productivity? What is the propagation mechanism of technology diffusion that facilitating economic growth? How does the change in the intensity of technology diffusion resulted from structural change in import trade influence economic growth path? To what extent does the change in technology diffusion affect output fluctuation? All these questions lead us to further study the relationship between import trade, technology diffusion and economic movement, and to clarify the impulse and propagation mechanism of technology diffusion that affecting economic growth. The answers to these questions can provide us with theoretical foundations and references to some issues of critical importance, such as exploring the source of China's economic growth, and promoting labor productivity through technology diffusion.This dissertation is comprised by eight chapters. The main contents and the views of each chapter are as follows.The first chapter is the literature review. It mainly includes two sections, one of which is the literature about relationship between commodity trade and technology diffusion, and the other section is the literature about how technology diffusion or technology shock affects economic fluctuation. We also try to briefly analysis the existing literature and give some comment on it. Accordingly, we propose our breakthrough point and study perspective:endogenous R&D investment and technology transformation.The second chapter reviews relevant theories of this dissertation. Firstly, we survey the theories about how import is promoting international technology diffusion. Based on the unified framework of Grossman & Helpman (1995), we introduce theory of international technology diffusion from two aspects which are learning by doing and embodied R&D investment. Secondly, we introduce relevant theories about how technology diffusion affects economic fluctuation. This section involves innovation theory created by Schumpeter, impulse and propagation theory created by Frisch and real business. cycle theory created by Kydland and Prescott.The third chapter focuses on the basic situation of China's commodity trade. First of all, it is necessary to define international technology diffusion used in the dissertation, and to compare import trade with other three international technology diffusion channels. Then we go to the main body of this chapter. Import trade balance ratio is constructed to describe whether China is the net supplier or the net demander of certain goods. Three different classifications of commodity trade, which are HS, SITC, and BEC/SNA, are used to analysis the commodity trade step by step in China. The discussion above leads to two conclusions. Firstly, China is absolutely the net demander of capital intensive goods and technology intensive goods, which implies that China is on the technology absorption states in the process of international technology diffusion. Secondly, the BEC/SNA classification is the most effective method to explore how import transmits international technology diffusion, since it reflects the distribution of technical content.The fourth chapter is devoted to empirically study how the import trade structure change affects technology diffusion. Based on the specific features of China, we modifies LP technology spillovers model in three aspects:import structure which is measured by proportion of capital goods import, is introduced into the model; R&D stock of China is substituted by technology stock; two regression equations which separately examine China's technology stock and foreign R&D stock are set up. Empirical research reveals that import trade structure in China can significantly influence international technology diffusion. Moreover, China's technology stock contributes less than foreign R&D stock to China's technical progress, and there is a significant interaction mechanism between human capital stock and import trade structure, which is critical for China to effectively absorb the fruits contained in international technology diffusion.The fifth chapter is to conduct analysis on the nonlinear relationship of international technology diffusion and China's economic fluctuation from the perspective of endogenous R&D investment and technology transformation. Firstly, it is essential to comprehensively compare economic fluctuation and business cycle, and clearly define economic fluctuation used in the dissertation. Secondly, we theoretically discuss the internal relationship between international technology diffusion and economic fluctuation. The key feature of developing country like China is that the endogenous R&D investment is embodied in the process of technology adaptive transformation or technology re-innovation. Thirdly, a modified RBC model is set up according to the theoretical analysis above, which accounts for technology diffusion and endogenous R&D investment and technology transformation. Numeric methods in the literature of dynamic stochastic general equilibrium model are adopted to solve the model. Using China's annual data from 1989 to 2008, we calibrate the model and, through simulation, show that our model fits the real economy reasonably well. Besides, impulse respond analysis and variance decomposition indicate that positive technology diffusion shock contributes approximately 24.35% of fluctuation in real economy, and its contribution is about twice of exogenous neutral technology shocks to economic growth. In addition, Kydland-Prescott variance ratio suggests that our model can explain about 73% of the fluctuation of real R&D investment, which implies that our characterization of R&D investment is successful and the assumption that China invests R&D to transform foreign technology or re-innovate is reasonable.The sixth chapter brings the abstract model back to the real world. The first section qualitatively assesses how these real factors influence the effect of import on international technology diffusion. These real factors briefly include human capital flow, institutional constraints, and trade policies and so on. From the perspective of extending RBC model, the second section focuses on the real factors concerning the effectiveness of impulse and propagation mechanism and the reality of the RBC model.The seventh chapter proposes several suggestions about how to strengthen international technology diffusion and promote economic growth based on our main conclusions. The whole process from structural change in import trade to economic fluctuation can be divided into four stages. Although there inevitably exists time lags during the impulse and propagation mechanism, they can not completely deny the effectiveness of the mechanism. The theoretical analysis and empirical study conducted above lead to the following suggestions which are based on continuously developing China's ability of technology innovation: effectively expand the sources of international technology diffusion, actively enhance the ability to absorb benefits from technology diffusion, encourage R&D investment on the purpose of increasing the probability of endogenous technology transformation, and make all-out efforts to guarantee the smoothness and effectiveness of impulse and propagation mechanism.The last chapter reviews the findings in main chapters above, and extracts four conclusions of the whole dissertation. In addition, we summarize three defects in the second section and propose promising directions for future study.This dissertation tries to make contributions in the following two aspects.(1)This dissertation discusses the topic from a different perspective.Most previous researches do not judge the nature of national R&D investment, regarding it as an exogenous variable, and therefore introduced it into regression equation directly. Also, most studies focuses on the linear relationship between import trade and economic fluctuation. This dissertation proposes that China's R&D investment and technology transformation are endogenous in the process of international technology diffusion. It follows that, most of the time, companies need extra R&D investments to transform foreign technology in order to make it suitable for direct production in home country. It is the marginal cost and marginal revenue of technology transformation endogenously determines the scale of R&D investment. Besides, national technology stock came from national R&D investment would raise the probability of successful technology transformation, which is exact the marginal revenue. To sum up, this dissertation discusses the nonlinear relationship between import trade structure and China's economic fluctuation from a different perspective, which is the endogenous R&D investment and technology transformation.(2)This dissertation improves both empirical model and theoretical model.â…°)This dissertation improves the empirical model.The existing literature about technology diffusion of import trade focuses on three models:CH, CHH and LP models. Although the common purpose of most current studies is to accurately measure technology diffusion, the main difference is the way to build up the weight of foreign R&D stock. This dissertation originally introduces the China's import trade structure into LP model to re-adjust the weight of foreign R&D stock, using proportion of capital goods import as the index. This modified empirical model measures technology diffusion more accurately, and goes much further on the empirical study in this field.â…±) This dissertation improves the theoretical model.The current literature about RBC theory mainly focuses on two aspects: introduction of other real factors (such as monetary, government, foreign countries and so on) and modification of some important assumption (such as labor supply, rigidity of wage, etc.). However, the core shock of RBC theory, say, the technology shock, is often ignored or directly regarded as exogenous neutral shock. This dissertation novelly extends the content of technology shock, regarding technology diffusion shock as one of the major sources of technology shock. We set up a RBC model, which accounts for technology diffusion, endogenous R&D investment and technology transformation simultaneously, to explore the relationship between technology diffusion and China's economic fluctuation. From this perspective, this dissertation makes breakthrough in theoretical model.