Sunil Jain: What determines exports?

PERSPECTIVES

Just how sophisticated are China’s exports, or India’s for that matter? And to what extent does foreign investment drive this? The general perception is that, in the case of China, foreign investment is responsible for a large part of both its export growth as well as sophistication (that is, China’s export basket closely resembles that of developed countries). Zhi Wang and Shang-Jin Wei have just done research on this and have interesting conclusions. For one, they find that while China’s export basket is a lot less dissimilar to that of developed countries than it was a decade ago, it still has a way to go — if the export baskets are the same, the Index will be 100.

India is about a decade behind China in this regard. The duo find foreign-owned firms or joint ventures have doubled their share in Chinese exports over the decade, to around 60 per cent in 2005; over 70 per cent of China’s exports come from firms outside special policy zones; indeed, most of China’s processing exports (simply processing of manufactured products) are produced outside export processing zones. The duo find cities with more skilled labour tend to have a more sophisticated export structure (so the presence of just foreign investors does not make the exports structure more sophisticated). They also find that, though China’s high-tech zones have higher unit value exports and are more sophisticated and foreign firms have higher unit value exports. In which case, it’s not immediately clear that special export zones will significantly change the structure of India’s exports basket.