"China Shock" or China Dividend? - China GVC Participation's Effects on Trading Partners' Technological Progress

• Published in: China economist (Beijing, China) China), 2024-01, Vol.19 (1), p.44-57
• Main Authors: Qifei, Chen, Jijun, Yang, Di, Ye
• Format: Article
• Language: English
• Subjects: Competition; Exports; Global economy; International trade; Productivity; Value chain
• ISSN: 1673-8837
• DOI: 10.19602/j.chinaeconomist.2024.01.03

This paper explores the effects of China 's global value chain (GVC) participation on technological progress in trading-partner countries based on estimated data on value-added trade between China and 52 trading partners. We find that, first, although Chinas exports lowered the total factor productivity (TFP) of its trading partners (competitive effect), its Imports greatly increased trading partners' TFP (effect of scale). This implies that Chinas GVC participation is beneficial to its trading partners' technological progress in the form of a considerable technology dividend effect. Second, Chinas export dividend effect compensates for the negative effect of Chinese competition on trading partners' technological progress; the innovation effects attributable to China s Imports reinforce the positive effects of scale on technological progress. When innovation is factored in, the China dividend thus becomes further reinforced. Third, China 's merchandise Imports have a diminishing positive effect on technological progress in trading partners as geographica! distance increases, but trade in semices transcends geographica! boundaries, and the positive technological progress effect of Chinas Service Imports do not diminish as distance increases. We find that the "China dividend" from Chinas GVC participation is a significant contrihutor to technological progress in partner nations, and China 's Imports are conducive to innovation and technological progress in developed countries in the long run.