Abstract
BackgroundThis paper discuss the effects of trade costs and comparative technology on industry location for the economy of China.MethodsThe model assumes differences in comparative technology and different intraregional and interregional trade costs, and argues how different factors influence the location of industrial value added.ResultsBy processing the designed model, equations were set up to check whether the conclusions from our mathematical model are credible under panel data at the provincial level of China from 1995 to 2014. We found that the location of industrial value added in a region strongly related to infrastructure and local market size.ConclusionsGeographical location of a region is an important factor for deciding which factor should be handled first (either intraregional or interregional).
Highlights
This paper discuss the effects of trade costs and comparative technology on industry location for the economy of China
We followed the generalized regression model, whereby manufacturing value added is strongly correlated with regional market and intraregional trade costs, whereas interregional trade costs are strongly correlated with regional technology
The market price of the regional industrial value added represents regional advancement in the industrial share (K) Chow (1993, 2010), which is further determined by the regional market size (MSz) measured through the regional gross domestic product, intraregional trade costs (IntraTC) as the cost borne for the transportation of passenger and freight volume, interregional trade costs (InterTC) as the flow of foreign direct investment and comparative advantage (CAd) as the average ratio of productivity per unit of labor in each region, (Ciccone 2002; Zhang and Zhang 2003; McCann and Shefer 2003)
Summary
This paper discuss the effects of trade costs and comparative technology on industry location for the economy of China. Methods: The model assumes differences in comparative technology and different intraregional and interregional trade costs, and argues how different factors influence the location of industrial value added. Krugman (1991) assumed monopolistic competition with economies of scale and iceberg trade costs to explain the industrial input-output mechanism by differentiating between core-periphery conditions. Behrens et al (2009) extended Krugman’s model to multiple regions, where they allow three different factors, regional market access, size and competition; combined with geographical location of a region these play a radical role in determining regional income and expenditure level and volume of industrial produce; the authors ignored regional comparative advantage over others The NEG (new economic geography) literature has tried to assess this question by considering the framework of increasing returns to scale and imperfect competitive markets (Dixit and Stiglitz 1977). Krugman (1991) assumed monopolistic competition with economies of scale and iceberg trade costs to explain the industrial input-output mechanism by differentiating between core-periphery conditions. Behrens et al (2009) extended Krugman’s model to multiple regions, where they allow three different factors, regional market access, size and competition; combined with geographical location of a region these play a radical role in determining regional income and expenditure level and volume of industrial produce; the authors ignored regional comparative advantage over others
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