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Liberalization of service trade and value added of export

MA Hong1 LI Xiaofan2

(1.Associate Professor at School of Economics and Management, Tsinghua University )
(2.Ph.D. candidate at School of Economics and Management, Tsinghua University)

【Abstract】After expanding at a fast pace for nearly 40 years, the Chinese economy has gradually stepped into a “new normal” stage that emphasizes quality of growth, which requires further economic liberalization to “develop an open economy of higher standards.” To achieve industrial upgrading and move up in global value chain, it is a must for China to reduce service trade barriers, appropriately open up service sectors, and encourage foreign investment in producer services. Services liberalization will promote the development of services and manufacturing sectors, and help balance the international balance of payments structure. Moreover, with the direct substitution effect and implicit trade effect, the opening-up of trade and investment in services will increase the value added embedded in manufacturing exports.

【Keywords】 liberalization of services; productivity of manufacturing; value added of export;

【DOI】

【Funds】 National Natural Science Foundation of China (71673160)

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    Footnote

    [1]. [1] Sheng, B. The Journal of World Economy (世界经济), (8): 10–18 (2002). [^Back]

    [2]. [1] If the foreign service industry is included, the proportion of total value added of service industry in the manufacturing products of each country will be close to 40%. [^Back]

    [3]. [1] Van der Marel, “Trade in Services and TFP: The Role of Regulation”, The World Economy, 35 (11): 1530–1558, 2012; Nordås, H. and D. Rouzet, “The Impact of Services Trade Restrictiveness on Trade Flows: First Estimates”, OECD Trade Policy Papers, 2015. [^Back]

    [4]. [2] Rajan, Raghuram G. and Luigi Zingales, “Financial Dependence and Growth”, American Economic Review, 88: 559–586, 1998. [^Back]

    [5]. [3] Arnold, J., B. Javorcik, and A. Mattoo, “Does Services Liberalization Benefit Manufacturing Firms? Evidence from the Czech Republic”, Journal of International Economics 85, 1, 136–146, 2011; Arnold, J. M., B., Javorcik, and A. Mattoo, “Services Reform and Manufacturing Performance, Evidence from India”, Economic Journal, 126 (590): 1–39, 2016. [^Back]

    [6]. [1] According to the way the service is provided, the General Agreement on Tariffs and Trade (GATT) of the WTO divides trade in services into four modes: cross-border trade, consumption abroad, commercial presence or FDI, and presence of natural persons. Among them, FDI of the service sector (the third mode) is the most important way of trade in services. [^Back]

    [7]. [2] See Ma, H. & Li, X. Does FDI regulation of the service sector inhibit domestic value added in exports: evidence from transnational panel data, Working Paper of Tsinghua University. Specifically, we conduct the fixed-effect regression on the variable indicating the degree of FDI regulation in the service industry with the proportion of domestic value-added in manufacturing calculated by the OECD value-added trade database. The sample includes all OECD countries as well as 50 countries including China, Russia, Brazil, India, South Africa, Singapore, Thailand, Malaysia, and the Philippines. [^Back]

    [8]. [1] Producer services include transportation, wholesale and retail, telecommunications, finance, and other business services such as accounting and scientific research. [^Back]

This Article

ISSN:1007-0974

CN: 11-3799/F

Vol , No. 02, Pages 82-92+6

March 2018

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Article Outline

Abstract

  • 1 Liberalization of China’s service industry
  • 2 The positive role of the liberalization of the service industry
  • 3 Liberalization of FDI in the service industry and domestic value added of the manufacturing
  • 4 Conclusion
  • Footnote