How to Determine the Upgrading Opportunities for Industries

Zhang Qizi and Li Hao

Institute of Industrial Economics, Chinese Academy of Social Sciences (CASS), Beijing, China

Graduate School, CASS

Abstract: Industrial upgrading and transformation is important for China to transform its way of development. To accomplish this task effectively, we need to identify industries with potential comparative advantage. Using the latest data on international trade of products, this paper verifies the premise of heterogeneity of product space of the evolutionary theory of comparative advantage, and analyses the evolution of product space of China and most countries in the world. The paper makes predictions on China’s industries with potential comparative advantage in near terms using the product space theory, and carries out thorough discussion on the evolutionary track of industries under different proximity thresholds. The basic conclusion is that even as China’s number of industries with comparative advantage is larger than the global average, its industrial upgrading capacity is limited, as it has fewer industries with potential comparative advantage and lower  sustainability in the current sectors than the world average. China faces a dilemma in the process of industrial upgrading, as a rapid upgrading would cause a shock to current economic growth, and a slow one would not maintain sustainable growth. With limited industrial upgrading capacity, the best structure adjustment and upgrading strategy is to give full play to the advantage of China’s industrial diversification and combination to achieve an inclusive upgrading.

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