Abstract:

China’s foreign trade has developed rapidly since the reform and opening up. After joining the WTO in the early 21 ^st century, China’s export economy has risen to unprecedented levels. In the past few decades, processing trade and “compressed industrialization” have changed China’s comparative advantages and export structure. However, with the increase in production costs, China's traditional industrial pattern can no longer sustain its development. Exploring China’s industrial evolution and studying its internal influence mechanism have great significance in responding to the challenges. Different from traditional research that studied export evolution by describing its quantity and structure at the macro level, the popular evolutionary economic theory “Product Space” adopts a network perspective to study industrial evolution at the micro level and thus, makes a breakthrough in economic geography. Product upgrade is essentially a process wherein a region shifts to new, related products in the product space. Therefore, this article uses global customs data for 2000-2011 to construct a dynamic product space. Some scholars have proposed the idea that developed countries tend to produce core products, and products located in the core area of the product space can move to nearby regions more easily than those in the periphery. However, there is no unified quantification to measure countries’ core-periphery location in the product space yet. Many existing proxy variables are related to economic attributes and there may exist endogeneity problems in measuring productivity. First, our article proposes an exogenous indicator, “core location,” based on the topology structure of the space network. The regression model indicates that our indicator is reasonable and confirms that a country’s location in the product space does indeed affect its economy. Then, we analyze China’s evolution in terms of the overall export pattern and export location in the dynamic product space. Results show China has changed its traditional specialized pattern to an increasingly balanced pattern, and its “core location” is becoming bigger, which means it is gradually crawling toward the core area. Compared to other countries, China ranked at the top on the changing range of “co-location”. Finally, we analyze the influence mechanism of China’s location evolution in the product space. We find that human capital is the dominant impact factor of China’s location evolution. Education and R&D investment, as the main aspects of human capital, can increase knowledge spillovers and promote innovation, which in turn generates technology progress and industrial upgrading. It is interesting that foreign investment does not really have significant potential to help China move to the core area in global trade.

Key words: product space, core-periphery, export evolution, influence mechanism, China