Posted by: Dirk | July 7, 2008

China’s fast-growing bazaar economy

China is probably the world’s biggest exporter by either this or next year. While in Germany Hans-Werner Sinn is sad about the slow growth German bazaar economy, China seems to enjoy rapid growth. It does not seem to matter that those sectors that are likely labeled as relatively sophisticated such as electronic devices have particularly high foreign content (about 80%), according to a paper by Robert Koopman, Zhi Wang and Shang-Jin Wei (NBER). Whereas imports in German exports make up as much as 50% of value added in marginal exports, imports in 13 Chinese industries make up more than 50% of value added (on average). They account for nearly 44 percent of China’s manufacturing exports in 2002.

As an extreme case, the iPod (30GB, 5th gen.) includes only $4’s worth of domestic value added. It is exported from China to the US for a total price of $150. This finding was published by Greg Linden, Kenneth L. Kraemer and Jason Dedrick in 2007 (pdf). On the service side, the picture looks also different from what you might have read in the press. Off-shoring does not seem to affect US workers much, and if so, the effect is likely to be positive and small. This is the result of Runjuan Liu and Daniel Trefler (also NBER). Taken together, this is some food for thought on the role of China in the world economy.

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