The impacts of exporting to China: assessing the productivity gains of developing countries using an instrumental variable approach

Abstract

ABSTRACT Developing countries have taken substantial measures to liberalize protected domestic markets to facilitate international trade. However, market liberalization often depends on policies of export expansion and innovations, raising the question: Is export expansion sufficient for productivity gains of developing countries? How does export expansion mediate the relationship between innovations and productivity gains? Are further policy interventions necessary? Hence, this study examines the impacts of developing countries’ exports to China on productivity gains from 1992-2022. Further, it investigates how innovations mediate the relationship between export expansion and productivity gains. The 2SLS method is applied for estimation, which addresses the endogeneity by using export expansion to China from other developing countries. The findings reveal that exports positively impact productivity driven by China’s rise. Innovations and learning by exporting significantly mediate the association between key variables. It highlights how developing countries benefit from China’s growth, contributing insights to trade and economic growth literature.