Developing Country Trade: Implications of China’s Changing Trade and Competitiveness in Intensive and Extensive Margin Goods

This paper delves into China’s differential growths in trade flows with high income and developing countries by focusing on bilateral content of trade data over the time period 1978-2005. Unlike other studies, we account for end use of traded goods ranging from primary, intermediate, and finished goods because China’s policies impact all segments China’s trade flows. In the last 28 years, China has specialized in deficits in the upstream production segments (parts and components) and rapid diversification in consumption goods (extensive margin). While in the late 1970s China’s export and import growth on all goods with major high income countries is outstanding in the most recent years China’s trade growth with developing countries has taken the lead while China is gaining in extensive margins goods trade. This general pattern evolving is in agreement with some of the new trade theory that gives a dominant role to an expansion of the number of export varieties (the extensive margin), which provides an additional channel for welfare gains from trade.