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What Drives Chinese Firms' Export Sophistication? A Perspective from the Rise of Minimum Wages

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  • Xiaoping Li
  • Shuzhou Peng
  • Wei‐Chiao Huang
  • Qian Zhou

Abstract

This paper re‐examines the driving factors behind the upgrading of China's export sophistication. Based on county‐level minimum wages and firm‐level export data for 2000–2013, this paper finds that the labor cost shocks caused by rising minimum wages have a significant positive impact on Chinese firms' export sophistication. Channel tests show that the positive effect of rising minimum wages on firms' export sophistication derives from the exit of less sophisticated products and the reallocation of the relative share of surviving products, rather than introducing new highly sophisticated products. Heterogeneity analysis reveals that rising minimum wages have a greater impact on export sophistication for low‐wage firms, domestic firms, and labor‐intensive firms. This paper has implications for developing countries regarding the transition from a low‐cost labor trade model to a sophistication‐driven trade model.

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  • Xiaoping Li & Shuzhou Peng & Wei‐Chiao Huang & Qian Zhou, 2022. "What Drives Chinese Firms' Export Sophistication? A Perspective from the Rise of Minimum Wages," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(2), pages 28-59, March.
    • Handle: RePEc:bla:chinae:v:30:y:2022:i:2:p:28-59
    DOI: 10.1111/cwe.12409
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    1. Jiazhen Ren & Apurbo Sarkar & Hong Li & Xiaojing Li, 2022. "Does the Host Country’s Foreign Direct Investment (FDI) Restrictiveness Inhibit the Export Sophistication of the Home Country? Evidence from China’s Manufacturing Data," Sustainability, MDPI, vol. 14(22), pages 1-20, November.
    2. Qiu, Guojing & Si, Deng-Kui & Hu, Debao & Li, Xinqi, 2023. "Banking deregulation and export product quality," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    3. Wei, Zhihua & Ren, Zerong & Zhu, Caiyun & Zhou, Yisihong & Liu, Xiaowen, 2023. "Minimum wage effects on firms’ R&D investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 287-305.
    4. Weihao Zhang & Helian Xu & Yuanyuan Xu, 2023. "Does Stronger Environmental Regulation Promote Firms’ Export Sophistication? A Quasi-Natural Experiment Based on Sewage Charges Standard Reform in China," Sustainability, MDPI, vol. 15(11), pages 1-17, June.

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