Embedded Cluster And Vertical Specialization

This paper give the idea why the Vertical FDI in china will clustered in some special place which I call it "Embedded Cluster" , since the industry it concerned never has the relationship with the existed local industry and how does it influence the pattern and the structure of Chinese foreign trade. Before I step further to the topic of embedded cluster, I discussed the topic of vertical FDI and an example of Embedded Cluster- the Taiwan IT companies agglomerated in DongGuan, Guangdong provincein China at first.Then I offered the reason of this kind of cluster and also it' s evolution. I found that this kind of cluster will accelerate the knowledge innovation within the producing network of those agglomerated enterprises and the knowledge spillover the cluster will attract more and more local companies to be involved in this network. The setup of the R&D institute of those multinational companies (MNC) will make the embedded cluster be a dynamic one. The dynamic embedded cluster will attract more and more processing of product into the network of cluster. The foundation of R&D institute will promote the evolution of embedded cluster.Since the vertical means the relocation of the value-added chain of the complicated products, and it will cause the "Vertical Specialization" between countries. That mean not only the value-added chain is broken geographically and to explore the location advantage of those local countries of regions, but also mean the dependency of each other within an internationalized producing network.The magnified effect of the declining tariff rate on the increasing foreign trade is explained in this paper. It will make it clear that why the amount of export will larger than the imports in those foreign invested companies and why the stable inflow of FDI companied with the growing foreign trade. Then we connected vertical FDI with embedded cluster, with the networking, those clustered foreign companies will access the "developmental enterprise " easily and also the knowledge and technology spillovers. Also, the idea to avoid the risk of market and minimizing the cost of information location, the path-dependency phenomena will appear when the foreign companies make the location choice decision.Embedded cluster accelerate the processing of vertical specialization, these foreign will export more products than before, and the embedded cluster will face the local demand but also the demand of world market following the global producing and selling strategy of MNCs.