The Effect Of Market Similarity To China’s Export Growth

Since the reform and opening up, especially after joining the WTO, China’s import and export has maintained a high growth rate, which is a bright spot in the development of international trade. By decomposing of China’s export growth from 2000 to 2012, we found that China’s export value had increased by more than six times, among which intensive margin accounted for 87.86% and extensive margin accounted for 12.04%. It implied us that there are some potential unstable factors in China’s exports. Besides, the growth of export in new markets contributed more than 99% to the extensive margin. So, I decided to explore Chinese exporters’new markets entry mode based on rising the extensive margin of China’s export growth.The general idea of this paper is:using theoretical and empirical research methods to analyze the impact of market similarities on Chinese exporters’ decision to entry new markets, in order to find the mechanism of market similarity to export decisions, so as to find out China’s export strategy and Chinese export enterprises’ globalization path, and finally provide useful policy reference.In a review of the relevant literature home and abroad, I found that the research of market similarity for foreign scholars was mainly based on the three angles:the relationship of market similarity and entry costs, the effect of market similarity on trade growth, and the mechanism of market similarity to trade growth. Domestic scholars’ study of export dynamics stayed on the effect on binary margins, and almost no people study the effect of market selection on extensive margin separately. Especially, there were no people working on the effect of market similarity on Chinese exporters’ entry into new markets. So there is a great future to do the relative researching. When entering into new markets, exporters faced with the huge fixed entry costs, and taking advantage of market similarity to enter into new markets can effectively reduce this kind of costs. Therefore, this article study how much and how market similarity can affect exporter’ entry decision.In the part of decomposition of China’s export growth, this article decomposed China’s growth on three dimension:industrial dimension, regional dimension and the dimension of binary margins. On the decomposition of binary margins dimension, I used Zahler (2011) decomposition method, which decomposed China’s export growth into the growth of new market, the growth of new product and the growth of existing products in existing markets. Moreover, the growth of new market and the growth of new product were called extensive margin and the growth of existing products in existing markets were called intensive margin. Generally speaking, China’s export growth in industry distribution was uneven, regional concentration was too high, and the intensive margin is much larger than the extensive, which made China’s export unstable and easier to be affected by economic fluctuation.In the theoretical analysis of market similarity’s effect on China’s export growth, I analyzed the relationship of fixed entry costs, transaction costs and market similarity, and found that market similarity impacted trade mainly by adjusting the extensive margin. So, I drew theoretical basis of this paper:market similarity impact on exporters’ entry decision by reducing the fixed cost, and worked on the extensive margin, thus affected China’s export growth.In the empirical analysis of market similarity’s effect on China’s export growth, I mainly analyzed the impact of market similarity indicators on Chinese exporters’ entry into new markets probabilities. I drew on Zahler (2011) theoretical framework and combined it with the actual situation in China, and used panel data for empirical studies. I investigated the effect of geographic proximity, cultural similarity and economic similarity between target markets and exporters’ previous market on the probability of exporters’ entry into new markets. The results showed that Chinese exporters’ exporting experience played an important role on the decision of entry into new markets. During the expansion of export markets, exporters tended to entry into those markets which has geographic proximity, cultural similarity and economic similarity with their previous markets.Finally, according to the conclusions of the study, I proposed some policy recommendations on the perspectives of government and enterprises. For the government, we should vigorously promote market diversification strategy to improve the extensive margin of export growth; create specialized export information agency for companies to facilitate their looking for new markets; encourage and guide enterprises to export to new markets. For enterprises, they should make global export strategy, take advantage of market similarity to entry into new markets, and industry associations should play a convenient role on export industry information gathering and sharing, facilitating companies to find new markets.