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On the Economic Content of Factor Content: with Application to China's Trade

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  • Chris Miller
  • Meng Lu
  • Zhihong Yu

Abstract

Chinese processing trade has grown considerably as firms adopted a wide array of organizational forms to have their products assembled in China for export. To understand the organization of processing trade we modify Grossman and Helpman's (2004) model of managerial incentives to account for the economic costs associated with firms' input control decisions in China. We examine Chinese processing trade between 1992 and 2003 to test the model's predictions. As predicted by the model, we find that firm productivity is related to processing choices. In addition, the organization of processing trade is found to match tariff levels at the product level.

Suggested Citation

  • Chris Miller & Meng Lu & Zhihong Yu, 2010. "On the Economic Content of Factor Content: with Application to China's Trade," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 17(3), pages 217-233.
    • Handle: RePEc:taf:raaexx:v:17:y:2010:i:3:p:217-233
    DOI: 10.1080/16081625.2010.9720863
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    References listed on IDEAS

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    1. Trefler, Daniel & Zhu, Susan Chun, 2010. "The structure of factor content predictions," Journal of International Economics, Elsevier, vol. 82(2), pages 195-207, November.
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