| Summary: | 碩士 === 國立中央大學 === 經濟學研究所 === 100 === This paper uses gravity model to explore whether the growth of China’s exports is displacing exports of other Asian countries during the period 1995-2010. In addition to total trade, we consider the trend in “production sharing” and further disaggregate total trade into primary goods, intermediate goods and final goods according to the production stage.
In order to control for the unobserved heterogeneity between two countries, it is good to use fixed-effect model. However, a common problem that arises when applying the FEM estimator to gravity models is that the within transformation does not give the estimates for the time-invariant variables. We overcome this limitation by applying the FEVD, a recent panel data technique that allows estimating the time-invariant variables. This estimator has also the advantage to improve the estimation efficiency for those variables with a relative low within variance.
Our empirical result shows that china’s export is complementary rather than substitute. The ongoing process of production fragmentation opens up opportunities for countries to specialize indifferent slices of the production process depending on their relative cost advantage. China plays a role as the final assembly center in the production line, and imports intermediate goods from nearby Asian countries. When China exports more final goods, East Asia countries will export more raw materials and intermediate goods to China and the intra-region countries. So the “China effect” is actually positive.
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