Research On The Mechanism And Effect Of Financial Development On Export Sophistication

Export sophistication is an integrated concept of the productivity and the content of exports in technology. It provides a new research angle to the international trade, and has drawn great attention of scholars from home and abroad. With the development of the theory and empirical study, the focus of researches on export sophistication has shifted from its measurement at the early stage to its evolvement motivations and the impact mechanisms. However, the lagged financial development has become one of the main reasons.limiting the improvement of the export sophistication. Therefore, the research on the mechanism and effect of the financial development working on the export sophistication will be meaningful theoretically and practically to the sustainable development of foreign trade.In order to eliminate the "statistical artifact" emerged under the background of cross-border vertical specialization, we first calculated the complete domestic value-added coefficient with non-competitive input-output method, then combined with the Hausmann Model (2005), and got the real exports sophistication for countries by removing the imported intermediate inputs from the exports.Furthermore, the study built a theory of the direct effect of financial development acting on the exports sophistication by providing financing and funding platform and incentives under the conditions of asymmetric information. In addition, by revising and expanding models of Chou and Chin(2001),Pagano(1993) and Alfaro(2003), etc., we built three indirect channels of financial development on the exports sophistication: spillovers from FDI, capital allocation and human capital accumulation. Based on the above theories, empirical analysis is delivered from the four dimensions of financial development both in cross-border and domestic cross-provinces level. The results are as follows:In addition to the traditional factor endowments, financial development is also a factor that affects the improvement of export sophistication of a country. Empirical results show that financial development can improve export sophistication directly by providing direct financing and funding platform, and motivations under information asymmetry. Meanwhile, by affecting the flow of human capital, the rate of capital utilization and the technology absorptive capacity of the host country, financial development can promote the utilization of human capital, R&D capital and the technology spillover of Foreign Direct Investment, thus the export sophistication will be indirectly promoted.But there exists a "threshold" effect of financial development working on export sophistication. At the beginning of economic development, financial cost is higher than financial profit, which results in the insignificant effect of financial development on the exports sophistication. When the economy is developed to a certain level, financial profit will exceed its costs, and the positive effect of financial development on the export sophistication will show up. Take China for example, the East and the West stepped over the "threshold" around2002and2005respectively.Different dimensions of financial development (Macro-scale, efficiency and structure) have different effects on the improvement of the exports sophistication in various industries, economies and different periods. Longitudinally, financial scale shows an effect of inverse U shape on the exports sophistication, financial efficiency makes a sustainable positive effect on the exports sophistication, and the financial structure effects dynamicly on the exports sophistication. With the promotion of the factor endowment structure, the industrial and technological structures in real economy as well as the risk characteristics of enterprises and its demand for finance will experience great changes, and the financial structure will also change accordingly. Synchronically, financial scale make a positive effect on the export sophistication of developing countries and low-tech industry, and financial efficiency has positive effect on the export sophistication of developed countries and high-tech industry. Large-size banks and equity-market oriented financial structure is more efficient in developed countries and high-tech industry, while small and medium-size banks oriented financial structure is more efficient for developing countries and low-tech industry.The export sophistication of China has been rising for years, and the gap between it and that of developed countries is becoming smaller. But it is still at a very low level in the world, especially in the high-tech industry.The unbalance of China’s financial development has led to functional weakening of financial market and the low financial efficiency, and the insignificant indirect effects of financial development on the accumulation of R&D capital and human capital resulted in China’s lagged export sophistication. At present, it is the financial scale that promotes the improvement of China’s export sophistication, and this work has been strengthening, while the effect of credit period structure is weakening, and the effect of financial efficiency has changed from negative inhibition into positive impetus. Different from the other developing countries, improvement of China’s export sophistication depends more on financial scale and the effect of financial efficiency has not showed up.There is distinct difference in the effects of financial development on the improvement of exports sophistication to different areas and industries of China. Financial scale makes a positive effect on the export sophistication of mid-west part of China and low-tech industry, and the effect of credit period structure is significant in improving the exports sophistication of mid-west part of China and low-tech industries, while financial efficiency is more significant in the eastern part of China and hi-tech industries.Based on the above results, the study gives five policy suggestions as follows: Firstly, financial scale should be reasonably controlled and its allocation in different areas of China should be optimized; Secondly, the state-owned financial monopoly should be broken down and the financial efficiency should be enhanced;thirdly, the financial intermediations should be enriched and a financial structure suitable for China should be formed; Implement the regionalized strategy of financial development; Improve the learning capacity and absorbing mor spillovers from FDI; lastly, transfer the training mode in human capital.