The Free Trade Theory And Its Application In China-A Case Study Of The Efficiency Of China's Automobile Industry After Its Entry Into The WTO

This paper reviews the free trade theory and its application in developing countries. The essential point is whether domestic producers will gain more than lose in the process of opening up. Then, this paper studies the efficiency change of Chinese automobile industry after WTO, and by investigating in the production level, it tries to find out the answer to it.The empirical study of this paper uses data envelopment analysis (DEA) and collects data of 20 Chinese automobile companies from 2003 to 2009, including information about its labor force, annual investments, output and change in capital. It can be divided into two sections:total analysis that reflect situation of the whole industry and individual analysis that reflects the efficiency difference of different kinds of enterprises. The first part uses DEA analysis to measure the industry's aggregate efficiency using the sum of 20 companies each year from 2003 to 2009 for sample. The result shows that, the overall efficiency of China's automobile industry kept rising in the seven year period, with efficiency brought by significant scale expansion. In the second part, the paper uses a DEA simulation to analyze the efficiency of 20 automobile companies as individually for 7 years, focusing on comparing the change in efficiency between Chinese indigenous and joint venture companies. The result shows that, the indigenous companies have been obtaining more economies of scale than joint venture companies from 2003 to 2009. This conclusion is consistent with the prediction of theoretical model. Also, this paper shows most of the efficiency improvement comes from economies of scale, and it demonstrates that the local automobile industry still has potential to develop.