WHAT DRIVES EXPORT COMPETITIVENESS? THE ROLE OF FDI IN CHINESE MANUFACTURING

Export competitiveness (XC) is a country's ability to compete globally through expanding export capacity and upgrading export sophistication. How does foreign direct investment (FDI) affect XC? This article studies the issue based on evidence from Chinese manufacturing. Using data on 21 manufacturing sectors for 31 regions over 2005-2011, we construct the XC index and its three composite indicators, following the Organization for Economic Co-operation and Development (OECD) and United Nations Industrial Development Organization (UNIDO). Four findings emerge from the estimates: (a) FDI is a key driver of China's export success; (b) China's absorptive capacity reinforces the effects of FDI through domestic learning efforts; (c) FDI seems to contribute more to export capacity than export upgrading, especially in labor-intensive/low-tech products; and (d) high-tech FDI from the western world seems to be more conducive to export upgrading than low-tech FDI from developing economies. (JEL F21, F23, O14, O53)