China: Has regional trade become more specialised?

It is widely believed that economic opening leads regions to specialise, and hence strengthens their comparative advantage. But has this been true in China; has there been a geographic concentration in its production over time? In Trade Liberalization, Wages, and Specialization in China (PDF), Chang (Cathy) Hong from the University of California, Davis, seeks to settle this debate by studying annual Chinese exports at a detailed commodity level from 1988-2003, and constructing regional Gini coefficients (of trade specialisation) for the interior and coastal China. She finds an interesting pattern:

We observe that inland China always has a larger Gini coefficient and hence is more specialized than the coast region. We also find that the Gini coefficients of both regions follow a U-shaped evolution pattern from 1988 to 2003, with 1994 being the turnaround point. So the Chinese regions underwent two stages of specialization: regions diversify from 1988 to 1994, but then specialize from 1994 to 2003.

So what has been going on? It looks like trade policy was key:

..China has gone through several stages of economic reform. 1988 to 1994 is a slow down period of China’s trade liberalization; and from 1994, a new phase of trade reform has started, as a result of both internal and external demand. So we conclude that the falling U.S. tariff dominates the period 1988-1994, and 1994 to 2003 is characterized by China’s trade barrier removal. This exactly explains why China’s regional Gini curves followed a U-shaped pattern, with 1994 being the transition point.

A nice piece of work. It was given at the Southern Economic Association annual conference this weekend.

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