Essays on international trade and industrial agglomeration

Abstract

After thirty years of economic development, the spatial distribution of China's economic activities, such as industrial production and international trade now displays significant spatial concentration. This dissertation studies the spatial distribution of China's economic activities from the New Economic Geography (NEG) perspective. Chapter 1 briefly introduces the economic background and the structure of this dissertation. It also summarizes the main conclusions and contributions of this work. Chapter 2 adds capital as a variable input for the final manufacturing production into the NEG model. The new model indicates that the thorough agglomeration of all industries does not happen. Only the labor-intensive industries completely agglomerate into the labor abundant countries and this only occurs under some extreme conditions. The simulation results also show that with immobile capital, the economy with the greater labor endowment will have a lower real wage level. For countries with strict capital controls, capital liberalization can help reduce wage difference between countries. Chapter 3 is an empirical application of a NEG model similar to the one developed in Chapter 2. It seeks to explain the regional wage disparity within China from the NEG perspective. The nonlinear regression based on pooled data from 237 cities (1990-2000) shows that regions with larger markets and labor endowments tend to have higher wage levels. This is consistent with most NEG studies' predictions. The estimation results also show that the estimated product elasticity of substitution for intermediate inputs in China roughly decreased during the studied period. This indicates that agglomeration has made the sub-regions of China lose their diversification in intermediate inputs. The last chapter (coauthored with Christopher Edmonds) introduces the Gravity Model Adjusted Trade Intensity Index to measure and compare the geographical intensity of China's bilateral trade with the world average level. We also make some comparisons between China and Japan, the other big economy in Asia which experienced a similar trade boom in the early period of its development.