Relating Vertical Specialization to Indigenous Technological Capability Growth: The Case of China

Abstract

It remains a challenge to empirically verify whether the large scale of exports are results of China’s export-oriented growth strategy and participation in global vertical specialization (VS) and has this transformed its indigenous technological capability. In the current literature of export performance study, however, there is a methodological gap in quantifying the domestic contents of exports from total exports. Therefore, the domestic technological change cannot be clearly identified and analyzed. This article bridged the gap by employing a unique Input-Output model to derive the domestic contents from total exports and to analyze the nature of related technological change. Our data analysis of China’s exports of manufacturing products for 1992–2009 reveal: (1) China’s participation in the global vertical specialization in high-tech sector grew accelerated chronically; (2) the VS participation was more aggressive in high-tech than in the medium-tech, low-tech and resources-based sectors; and (3) the net domestic contents in China’s exports in high-tech sectors grew much faster than the other sectors. The findings indicate that China’s export-oriented growth strategy, instead of creating dependence on low-tech and resource-based exports, had led to a rapid growth in sophisticated high-tech manufacturing with its indigenous capability.