“China Shock” or China Dividend?- China GVC Participation’s Effectson Trading Partners’ TechnologicalProgress

Chen Qifei*1, Yang Jijun2, Ye Di1

1 School of International Economics and Trade, Nanjing University of Finance and Economics (NUFE), Nanjing, China

2 School of Public Finance and Taxation, NUFE

Abstract: This paper explores the effects of China’s global value chain (GVC)participation on technological progress in trading-partner countries based on estimateddata on value-added trade between China and 52 trading partners. We find that, first,although China’s exports lowered the total factor productivity (TFP) of its tradingpartners (competitive effect), its imports greatly increased trading partners’ TFP (effectof scale). This implies that China’s GVC participation is beneficial to its trading partners’technological progress in the form of a considerable technology dividend effect. Second,China’s export dividend effect compensates for the negative effect of Chinese competitionon trading partners’ technological progress; the innovation effects attributable to China’simports reinforce the positive effects of scale on technological progress. When innovation isfactored in, the China dividend thus becomes further reinforced. Third, China’s merchandiseimports have a diminishing positive effect on technological progress in trading partners asgeographical distance increases, but trade in services transcends geographical boundaries,and the positive technological progress effect of China’s service imports do not diminish asdistance increases. We find that the “China dividend” from China’s GVC participation is asignificant contributor to technological progress in partner nations, and China’s imports areconducive to innovation and technological progress in developed countries in the long run.

Keywords: Global value chains, China dividend, trade in value-added, technology

JEL Classification Code: F14, F62

DOI: 10.19602/j.chinaeconomist.2024.01.03