Why is China so competitive? Measuring and explaining China’s competitiveness

Type :

Presentation

Pages :

36 pages

Format :

.pdf

Published date :

11/27/2006

Category :

Economics & finance

Sub category :

Economics

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Summary :

Introduction
Advantage theories
1. The beginnings of advantage theories
2. Ricardo's theory of competitive advantage
3. The heckscher-ohlin (h-o) theory of factor proportions
4. The h-o theory and the dornbusch, fisher, samuelson approach in the real world
5. Further development of advantage theory
Competitiveness theory
1. Porter's competitive advantage approach (1990)
2. Measuring the competitiveness and the criticism of the theory
3. Revealed comparative advantage
4. Exchange rate
Determinants of competitiveness
1. Revealed comparative advantage
2. The exchange rate
3. Labour costs
4. Foreign direct investment
Conclusion
References

Abstract

In the first part of our paper we will present the theoretical background of the international trade. We will begin with the description of the evolution of the comparative advantage theories, and then continue with the competitive advantage theory. On this point it is important to mention that the authors of the paper which was the basis for our paper are the opinion that the "Chinese Miracle" can be best explained with the term competitiveness (coming from the competitive advantage theory), so in their paper they only briefly mentioned the comparative advantage theories and discuss the competitiveness more thoroughly. However, the analysis of the international trade begun with comparative advantage theories (Smith's theory of absolute advantage) and there are still many economists claiming that the development of the East Asia can be explained sufficiently enough by them. Therefore, we found it sensible to include them in our paper. We will continue with the discussion of some important factors, responsible for china's competitiveness. We will briefly stop at Balassa's comparative advantages, which are an ex-post measure, to show where china has comparative advantages. Continuing with exchange rate we'll try to argue weather it's currency is undervalued, what are the main reasons for such a belief and provide the opposite side arguing why it is not so. In pursuit of the answer we'll use different theoretical background, mainly purchasing power parity and unit value ratios. Next important factor of china's competitiveness are the labour costs, which are determined largely by the wages. After that, we will talk about Foreign Direct Investment (FDI) in china which is also used as a measure of china`s competitiveness. We will show that FDI into china has dramatically risen during recent years- a sign of growing competitiveness for our authors. But we will also assess this statement critically before we conclude.