Gains From Trade Of China's Participation In The International Vertical Specialization

The primary aim of a nation's participation in the international division of labor lies in the acquisition of trade profits. International trade regards end products as the objects in the conversational intra- and inter-industry labor division mode, and the gains from trade are apparently perceivable and easily calculable. However, in the setting of international vertical specialization, the labor division exists in all production links instead of the end products only. Each country is integrated into the value chain according to their factor endowment and comparative advantages. The traditional trade surplus and trade price ratio can no longer reflect a nation's trade gains, so it is imperative to solve the issues of both gains calculation and the distribution among countries. In this sense, the paper analyzed the motives and deciding factors for vertical specialization on the basis of the previous researches and constructed a model for trade benefits distribution in terms of value chain. By taking trade added value as an index to measure the static gains from trade from the involvement in the international vertical specialization, the paper calculated and made an analysis of the influential factors by referring to the latest studies and using EU's WIOD. Moreover, it probed into the dynamic gains China acquired from the participation of its manufacturing industry in international specialization from the perspective of China's actual situation.The conclusions are as follows:Firstly, there is a big gap in the vertical specialization among different countries and industries. China showed an inverted U-shaped curve for its specialization from 1995 to 2011. A great discrepancy was found in the specialization of sub-sectors, which is closely related to its industry traits and its division degree. The transnational comparison presented the result that the vertical specialization of China's manufacturing industry is ranked as intermediate level, and that the economy entity with bigger economy scale owns a comparatively smaller VS ratio while that with smaller scale and scarce resources owns a bigger one. This result is the proof of dependence on external economy. In the upper-middle and high tech industry, there is a bigger VS ratio in China, other developing countries and emergent industrial countries than in the developed ones, which shows that there might be statistical illusion in the export of high tech products because it heavily relies on the import intermediate input.Secondly, the conventional trade accounting method, which centers on the customs area, exaggerates China's export scale in the condition of vertical specialization. The survey about the manufacturing sectors found that the trade added value China gained from export trade took up 75% of the total export revenue. This is disproportionately small value out of a large scale. The transnational comparison helped to find out that the developed countries, for example, America and Japan, gained greater trade profits because of their exports products with better technology; that because the export products from countries with abundant resources contained added value of the resources, there was a higher added value ratio in spite of a smaller quantity total and that there was a lower export added value ratio for those economy entities with smaller domestic market and strong reliance on external economy. Traditionally there is a lower export added value ratio in high-tech industry than in the other ones, which demonstrates that limited profits are gained from export trade. There is 11.56% more of the total domestic added value in the service industry than in the manufacturing one.Thirdly,gains from trade for a nation depend on a range of institutional and non-institutional factors, for instance, the division form, factor endowment difference, R&D intensity, weighted tariff rate and infrastructure facilities. The degree to which one's participation in vertical specialization has an impact on the trade added value and trade value added rate: the higher the specialization, the greater gains total a country has from it. However, the higher degree of vertical specialization is equivalent to greater foreign value of export and a lower domestic added value rate, which brings harm to the increase of trade value added rate. The intra-industry trade is more significantly beneficial to trade added value total but comparatively less helpful for trade value added rate. The bigger the endowment difference, the more difficult it is for a country to acquire trade profits. Smaller trade barrier and better infrastructure facilities are great guarantees for the acquisition of trade values.Fourthly, the international vertical specialization has a great impact on China's employment structure. In spite of its industries' participation in international vertical specialization, there is no greater demand of skillful labors in China. Research inputs have a positive and significant effect on the employment of highly skillful talents. Similar to FDI, capital deepening degree still relies on unskillful labors though it enhances an industry's capital intensity. There is no difference between high-tech industry and the other ones.Fifthly, the involvement in international vertical specialization facilitates technology progress. An empirical study of dynamic panel GMM found that vertical specialization had a positive and significant influence on the production rate of the manufacturing industry in China and greater influence on efficiency improvement. The research degree of one industry has a positive influence on total factor productivity, but the influence falls behind our expectation.Sixthly, the transnational comparison revealed that China‘s manufacturing industry was positioned low in the global international labor division, which did not match China's large trade scale. China's position in the international labor division experienced a U-shape curve because of its entrance of WTO, its policy direction and technology change. The industry analysis results displayed that the majority industries belong to the lower part of the value chain, and those in the upper part are resources intensive but they occupied only a small proportion of export. It also found out that the traditional high-tech industry had an important role in export but they were always in a low, and even worse, position in international labor division. There are risks of being locked in the low-end part.At last, the paper proposed suggestions and measures, such as the increase of trade value and the improvement of labor position.