Foreign Trade And China’s Manufacturing Industrial Agglomeration

Trade is the engine of economic growth. The mainstream trade theories suggest that free trade can improve the welfare of all countries that involved in it. After World War Ⅱ, countries which implement export-oriented strategy, such as Japan and the Newly Industrial Economics (South Korea, Hong Kong, Taiwan and Singapore), have all achieved rapid economic development, which becomes a strong evidence that trade can promote economic growth.Since the reform and opening up, China’s foreign trade has achieved rapid development. China’s total trade in goods raised from 35.5 billion Yuan in 1978 to 25.82 trillion Yuan in 2013, an increase of more than 700 times, and China’s share of world trade in goods raised form less than 1% to about 12%. During this period, China’s economy had achieved rapid development:from 1978 to 2013, the average annual growth rate of China’s real GDP close to 10%, and China’s GDP reached $9.18 trillion in 2013, ranking the world second-largest economy. However, the domestic industry geography ("industry" is limited to manufacturing industry in this paper) has also undergone profound changes at the same time:the aggregate output and employment of China agglomerate to the eastern coastal area and the income gap between the coastal and inland raise also.The changes of China’s industrial geography occurs in the background of the liberalization of foreign trade. Therefore, it is certain that there is some sort of close relationship between foreign trade and industry agglomeration, and it is the imbalanced spatial distribution of industry cause the current regional development disparities in China. Domestic and foreign scholars have done many work to explore the relationship between foreign trade and industry agglomeration from different angles, however, the relevant literature that establish theoretical models combined with China’s actual situation of developing country to analyze the impact of foreign trade to industrial agglomeration, especially to manufacturing industrial agglomeration is not enough. Therefore, the study of the internal relations between foreign trade and manufacturing industry agglomeration in light of the actual situation in China has important theoretical and practical significance.The main content of this paper can be divided into three parts. Based on the current popular new economic geography theory, the first part of this paper established a general equilibrium model which contains two countries and three regions. The setting of asymmetric trade costs in the two regions of domestic, as well as the handling of consumption structure and employment structure, made our model more in line with China’s geographical structure and the reality situation of China’s state of a developing country. Based on this, the theoretical part of our paper focused on the analyzing of the impact of the liberalization of foreign trade and the integration of domestic economic on the agglomeration of domestic manufacturing industry. In the second part of this paper, we made a descriptive analysis on the history and current situation of China’s foreign trade and manufacturing industry agglomeration firstly, and on this basis we constructed two econometric models one of which is an area-time structure and industrial-time structure another respectively, aimed to analysis the relations between China’s foreign trade and manufacturing industrial agglomeration both on region and industry angle. The last part of this paper is conclusions and policy recommendations. Through the above analysis, this paper obtained the following conclusions:(l)In the case of two asymmetric regions of the theoretical part of this paper, the liberalization of foreign trade break the spatial structure of labor distributed uniformly, region which has geographically advantageous develop to a "core", while another area become a "periphery. In contrast, the integration of domestic economic can promote manufacturing industries agglomerate to the region which has geographical advantage only within a certain range, with the rise of the level of the integration of domestic economic, the share of the manufacturing industry of the two regions will converge.(2)The descriptive analysis on China’s foreign trade and manufacturing industry agglomeration of this paper shows that the deterioration in external demand and the dispersion of China’s manufacturing industry occur simultaneously. With China’s economic growth mode changing from "pull by external demand" to "pull by domestic demand", the share of trade and manufacturing industrial are all decreased in eastern, and the central and western regions undertake the industrial transfer of the eastern region successfully, and their share on foreign trade raise also.(3)The econometric analyzes of the empirical part of this paper confirm the conclusion in theoretical part:that is, the liberalization of foreign trade promotes manufacturing industry agglomerate to the eastern coastal areas which has geographical advantages; whereas, the increasing of the level of the integration of domestic economy at this time converge the gap between the east region and the central and western regions on the share of manufacturing industry.