International Vertical Specialization And China's Export Composition

With the rapid development of the globalization, international vertical specialization becomes a distinctive characteristic of modern economic activities. As the largest developing country, China has joined the division of international vertical specialization which is led by developed countries (or MNCs). However, there are two different hypotheses about the gains this phenomenon brought about: some thought that China would be 'locked' in the low-end production process due to the distribution and invasion strategies of developed countries. Others held the optimistic view that China could optimize the export composition and improve the international competitiveness of its products by factor accumulation, skill spillover and 'learning by doing'. This paper analyzes the constraints of the theoretical views and conducts the empirical tests based on these hypotheses.Theoretically, we compare the difference in terms of trade of developing countries from the framework of traditional division and find there would be deterioration in the competition between homogeneous producers. According to the analysis of multi-stages production, we find the flow of factors in the developed and developing countries would reduce the difference of international division. Although the skill spillover and 'learning by doing' would enhance the advancement of the absolute technology, there may also be a difference from the initial factors.Empirically, this paper measures the vertical specialization index and the optimization of export composition. It also analyzes the changes in products' distribution and complexity both in total and single. The result shows changes in the export composition of some products should be described by vertical specialization. Then, the analysis of econometrics reveals there was a fallen of optimization effects and even a trend of deterioration while the technology of product was rising. Finally, the upgrading from 'Legend' to 'ThinkPad' which is championed by Legend Company and 'Galanz' Company's upgrading way show a new road to the higher production processing.