Sophistication of China’s Manufactured Exports and Determinants

Abstract

The technological structure of China's manufactured exports has significantly upgraded with the rapid export growth since the 1990s, which caused us to think whether the sophistication of China's manufactured export has caught up that of the developed countries. This paper calculates the VS-adjusted index of sophistication of China's manufactured exports by eliminating the “technological contribution” of imported intermediates resulted from vertical specialization, and then empirically tests the determinants of China's sophistication of manufactured exports. It is found that the genuine sophistication level of China's manufacturing exports measured by VS-adjusted domestic sophistication is lower than the usual measurement of total sophistication. What's more, both the levels of domestic sophistication and total sophistication of China's manufacturing exports are obviously lower than those of the main OECD countries. The embodied sophistication of imported intermediates is quite larger than total sophistication of manufactured exports from China, especially in usually labelled high-tech manufacturing sectors. The empirical results show that improvement of factor structure, R&D investment, and financial development play a decisive role in upgrading both domestic and total sophistication of China's manufactured exports, while vertical specializations and FDI play little role in enhancing domestic sophistication of China's manufactured exports.