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What Explains China's Rising Trade in Services?

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  • Yihong Tang
  • Yan Zhang
  • Christopher Findlay

Abstract

From 1982 to 2009, China's exports, imports, and foreign direct investment in services have seen incredibly rapid growth. A high proportion of its trade in services is intra-industry trade, but China has no comparative advantage in most service sectors. What, then, drives the growth of trade in services? Does the law of comparative advantage still work? This article considers the features of traded services and derives a modified gravity model based on a theoretical foundation. Using a database of the bilateral trade in services between China and its main trading partners in the modified gravity model, we find that the law of comparative advantage does apply to China's services trade. China has comparative advantages in relatively low-end service tasks, which are less productive, use relatively low-skilled labor, and are less knowledge- and capital-intensive. Liberalization of trade in services, trade in goods, and China's large home market drive the growth and lead to a high level of intra-industry trade in services.

Suggested Citation

  • Yihong Tang & Yan Zhang & Christopher Findlay, 2013. "What Explains China's Rising Trade in Services?," Chinese Economy, Taylor & Francis Journals, vol. 46(6), pages 7-31, November.
    • Handle: RePEc:mes:chinec:v:46:y:2013:i:6:p:7-31
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    Cited by:

    1. ZHANG Hongyong, 2015. "Explaining the International Mobility of Chinese Workers, 1992-2012," Discussion papers 15045, Research Institute of Economy, Trade and Industry (RIETI).
    2. Zhang, Yan & Bai, Zhuoran & Findaly, Christopher, 2021. "Value-added Tax Reform and Services Exports: Evidence from China," MPRA Paper 111184, University Library of Munich, Germany, revised 2021.

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