Geographical Location And Economic Structure, The Impact Of Trade Openness Of China's Provinces

The rapid growth of Chinese economy since "opening policy" has gained world-wide attention. It is generally accepted that, opening, especially the rapidly growth of foreign trade, is one of the main driving powers of our economic growth. However, it also arouses the important issue of imbalanced regional development and differed trade openness across provinces. This paper puts emphasis in finding out the basic factors of cross-province trade openness difference, so as to figure out the policy aimed at enhancing trade openness in under-developed region and finally improve balanced regional growth and development. The innovation of this paper is the usage of Gravity Mode to quantify the crucial factor of "geographic location" and the introduction of "economic structure" into the gravity model. The empirical study of 31 provinces of China from 1999-2006 shows the transportation cost of trade is the essential factor of the concentration of trade in the coastal region; the proper way for inner provinces to promote trade is to develop industries with high added value and low transport cost. The deduction is, middle and west regions should not develop industries with low added value and high transport cost, such as processing trade; it is only suitable in regions with low transport cost.The structure of this paper is as follows: chapter one discusses the influence of trade on economic development, both theoretically and empirically, and comes to the conclusion that no matter internationally or regionally within China, trade openness, measured by trade dependency, is positively related to economic development. Chapter two analyzes the general factors of trade openness and the specific factors for our provincial trade differences, and points out the feasibility of introduction of gravity model of trade. Chapter three uses the modified gravity model with economic structure for regression of provincial trade openness, and comes to the conclusion that geographical location influences provincial trade openness via transport cost, but the proportion of tertiary industry, especially the high value-added industries with low transport cost, could promote trade openness by offsetting the negative influence of transport cost. Other factors of provincial variation not included in the model are also discussed in this chapter. Chapter four makes some policy suggestions based on the result of chapter three: high-tech industries with low transport cost and high added value rather than processing trade are most suitable for middle and west provinces to promote foreign trade. Some suggestions regarding the development of high-tech industries in these regions are also discussed in this chapter.