Research On Dynamic Comparative Advantage Of China 's Manufacturing Industry

Since1990s, china has become a global manufacturing power. However, in recent years, the rise of labor cost combined the decline of foreign demand resulted in the circumstance of manufacturing became more and more tough. Is it the turning point of "Made in China"? Did we have to create more internal demands and turn to develop service rather than manufacturing?This article was based on dynamic comparative advantage theory. We focused on two main factors that were influential to the change of comparative advantage:labor costs and labor productivity. Through systematic data statistics and international comparisoon, we concluded that manufacturing of China as a whole still have advantages, but the situation is various in different sub-industries of manufacturing. Ebbs and flow can be seen in our analysis of comparative advantage of three kinds of manufacturing, which also reflected the dynamic advantage theory. Some suggestions to structure transition of manufacturing and how government to play a better role" in the transitional situation was given at the end of this thesis.This article consists of6parts. The first chapter is a simple introduction of research background, significance of this research and the emphasis and difficulty. The second chapter is theory foundation and literature review. We reviewed the definition and evolution of comparative advantage form Adam Smith and David Ricardo to Krugman. Then the source of comparative advantage was summarized. We pointed out that the core of comparative advantage lied in the comparison of labor costs and labor productivity, which is also called by Krugman the productivity-wages ratio. We analyzed total export amount, the structure of manufacturing and adopted RCA index to measure comparative advantage of manufacturing as a whole. We also argued that RCA is not sufficient to reflect a nation’s actual comparative advantage. In the fourth chapter, we analyzed the tendency and reasons of comparative advantage dynamics. Based on systematic measures of labor costs and labor productivity combined with international comparison of them, we made our judgment to comparative advantage dynamics and make use of ARMA model and regression analysis to predict the comparative advantage of manufacturing in the next7years. We confirmed that manufacturing still have comparative advantages. We sorted manufacturing to three kinds based on factor intensity. We measured comparative advantage and comparative labor productivity in chapter5. It suggested that three kinds of manufactures were faced with different problems. Capital-sensitive manufacture has not built up its comparative advantage, although its productivity is higher than labor-sensitive manufacture. Comparative labor productivity of labor-sensitive manufacture was kept stable in recent years, while the comparative advantage is always declining. The increasing rate of comparative advantage of tech-sensitive manufacture and the comparative advantage declined in recent years although comparative advantage is always increasing. It is the right time for us to change the manufacture structure. Our conclusion and suggestions to keep the dynamic comparative advantage and manufacture upgrading were included at the end of this paper.