Download Empirical Analysis of Relationship Between Processing Trade and

Empirical Analysis of Relationship Between Processing Trade and
Economic Growth in Shandong Province
ZHANG Guimei1, XUE Qiangfei2
1. Dept. of Economics, Shandong Institute of Business and Technology, Yantai, P.R.China, 264005
2. Local Dept. student of grade 2007 class one, Naval Aeronautical Engineering Institute, Yantai, P.R.
China, 264005
[email protected]
Abstract: From the time of reforming and opening, processing trade of Shandong province wins
sustainable development. However, compared with big foreign trade provinces, such as Guangdong, and
Jiangsu etc., Shandong province still has big gap with them. The value-added coefficient of processing
trade in Shandong Province is higher than the national average. An empirical analysis to processing
trade of Shandong Province is conducted, with processing trade's contribution and pull index of
economic growth, and using of linear regression method, and the analysis shows that: in the long run,
there is a stable positive relationship between the processing trade and Shandong economic growth, but
compared with the general trade, its leading role is smaller. So we should extend product processing
chain, and promote transformation and upgrading of processing trade.
Keywords: Processing Trade, Value-added Coefficients, Pulling Degree, Empirical Analysis
1.
Introduction
The empirical study of relations between processing trade and economic growth, in abroad it mainly
concentrates to measure the aspect of spillover effects of technology and catalyst effects in the export
processing zones to the host country, such as Jo-hansson and Nilsson (1997) used gravity model to
measure catalyst effect in export trade zone of the 10 countries and regions in 1980 to 1992, they
thought the catalyst effect is obvious in Malaysia; Jayanthakumaran (2002) conducted an empirical
research on cost-benefit of the Asian export processing zones, it showed that in South Korea, Indonesia,
Malaysia, Sri Lanka and other countries, export processing zones have played a positive role to the host
country in economic development. An Empirical Study of national scholars focuses on China's
processing trade and regional contributions to economic growth, mainly with two research approaches:
using the national income identity equation to calculate the contribution of net exports of processing
trade to economic growth; second, by building an econometric model to estimate the effects of
processing trade on economic growth and determine the causal relationship between them. Such as Liu
Zhizhong, Zhang zhouyao (2003) calculated the contribution degree and pulling degree of the
processing trade to economic growth since year 1991 ; Yan Guoqing and Chen Lijing (2005) conducted
an empirical analysis on the role which processing trade plays to China's economic growth, with the
processing trade coefficients, pulling degree of processing trade to China's GDP and linear regression
analysis methods; Kong Qingfeng and Li xiue conducted an empirical analysis on the relationship
between economic growth in Shandong Province and an empirical test, with the method of
co-integration analysis and Granger causality test methods. These results indicate that, in the long run,
there exists a stable positive correlation relationship between the processing trade and economic growth.
This paper compares the processing trade and general trade, compares Shandong Province level with the
national average level and the level of big economic province. To conduct an empirical analysis on the
relationship between processing trade and economic growth in Shandong, by the analysis on
development degree of processing trade of Shandong Province, measurement of economic growth
pulling degree and linear regression analysis of economic growth, in order to fully understand the
processing trade of Shandong Province and the pulling role of economic growth.
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1.1 The development of processing trade in Shandong
Since the reform and opening up, Shandong Province uses its favorable geographic position, good
economic base, vigorously explores and develops the processing trade, makes processing trade way
becoming Shandong's strong boosters of foreign trade development. Take export for an example,
processing trade amount of Shandong Province in 1987 is 2.5 billion U.S. dollars, accounting for 8.64%
of the whole national export, after that the processing trade exports went into high-speed development
period, export volume of processing trade in 1992 was 4 times more than 1987, export proportion also
rose to 23.7%; and from 1992 to 1996, every two years, this figure was doubled, reaching more than 4.6
billion U.S. dollars, the proportion of total exports rose rapidly to 50.74%, then it went into the steady
double-digit growth. In 1997, exports proportion reached the highest value of 55.12%, the following
several years it declined slightly, but remained at 50%, and evenly divided with the general trade (see
Figure 1).
Figure 1 The proportion changes of processing trade in Shandong Province
60
50
40
The proportion of
processing trade
30
20
10
0
1987 1990 1993 1996 1999 2002 2005 2008
Source: Shandong Province Statistical Yearbook from year 2003 to 2008.
After accession to the WTO, processing trade maintains rapid and stable development momentum in
Shandong Province. The import and export of processing trade total amount is 67.03 billion U.S. dollars
in Shandong Province in 2008, a record high, 4 times of 2002, increased by 21% over the same period of
the previous year, accounted for 42% of imports and exports total amount in the province. Among them,
42.955 billion U.S. dollars are exports amount, increased by 21.26 percent, 24.079 billion U.S. dollars
are imports amount, increased by 20.64%. However, compared with big foreign trade provinces, such as
Guangdong, and Jiangsu etc., Shandong province still has big gap with them. It can be seen from Table
1, Guangdong, Jiangsu provinces total import and export amount of processing trade is more than our
province’s total amount of import and export. Similarly, foreign trade way in Zhejiang province is
different from the above two provinces, the processing trade accounted for only 21.73% of total import
and export of the province, that shows general trade supports its continued trade growth. For general
trade, parts are purchased in their own countries, processing trade industry chain is longer, the boosting
role in economic growth will be significant.
Table 1 Processing trade comparison of the developed coastal provinces in 2008
Unit: 100 million U.S. dollars
Processing trade
Foreign trade
Proportion in Foreign Proportion in Processing
Province
imports and
imports and
trade imports and
trade imports and
exports total amount
exports total amount
exports total amount
exports total amount
Guangdong
4170.4
6832.6
61%
40%
Jiangsu
2260.0
3922.7
58%
21%
Shandong
670.3
1581.4
42%
6%
Zhejiang
458.8
2111.1
21.73%
4%
Data Source: Commerce website of above provinces
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2.
Empirical analysis of relationship between processing trade and economic
growth in Shandong province
2.1 Value-added Situations Analysis of processing trade
Value-added coefficient is a quality indicator of measuring our foreign exchange levels in processing
trade, the value is the ratio of processing trade exports with imports, the index reflects the value-added
levels of trade products from import raw materials to export finished products, it can more directly
reflect the added-value level of the product after processing, if their values has the trend of increasing,
then it shows that the added-value of processing trade is rising. As can be seen from Table 2,
value-added coefficient of processing trade is greater than 1 in Shandong Province, on the whole,
although value-added factor repeats, but the overall trend is increasing, particularly after 2004,
significant growth trend shows that the export capacity of processing trade is gradually increasing in our
province. Moreover, Table 2 shows that between 1998 and 2008, the processing value-added level in
Shandong province is significantly higher than the national average, indicating that production and
processing capacity of processing trade of our province is better than the national average.
Table 2 Processing trade value-added coefficient of Shandong province and the whole nation
from 1998 to 2008
Year
Shandong Province
The Whole Nation
1998
1.6134
1.5236
1999
1.6005
1.5066
2000
1.5595
1.4873
2001
1.5902
1.5691
2002
1.6436
1.4721
2003
1.5661
1.4851
2004
1.6400
1.4794
2005
1.6818
1.5188
2006
1.7477
1.5876
2007
1.7748
1.6760
2008
1.7839
1.7842
2009
1.8688
1.8294
Data Source: Yearbook of Shandong Province and the Statistical Yearbook of China.
2.2 Contribution degree and pulling degree of processing trade to GDP in Shandong Province
Pulling degree of processing trade to economic growth indicates how many percentage points are
contributed by the processing trade in the economic growth. The pulling role of processing trade to
economic growth can be calculated from a simple Keynesian model under the open economy conditions.
The identical equation of national income for four sectors:
(1)
Y = C + I + G + NX
In which, Y, C, I, G, NX respectively indicates GDP, consumption demand, investment demand,
government purchasing expenditure, net exports, according to (1) we can get incremental identical
equation:
(2)
∆Y = ∆C + ∆I + ∆G + ∆NX
∆ indicates the added value. When the net exports increase, the foreign trade drives GDP growth
positively; when net exports decrease, the foreign trade drives GDP growth negatively. Separated from
trade way, net exports can be separated to the processing trade net exports, the general trade and other
forms of trade net exports, thus (2) can be transferred into:
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∆Y = ∆C + ∆I + ∆G + ∆NX 1 + ∆NX 2
(3)
In which,
NX1,
NX2, respectively indicates net exports of processing trade, general trade and
other forms trade. In identical equation (3) both sides at the same time divided by Y, and then we can
see:
∆Y / Y = (∆C / C)*(C / Y) + (∆I / I )*(I / Y) + (∆G / G)*(G / Y) + (∆NX1 / NX1)*(NX1 / Y) + (∆NX2 / NX2 )*(NX2 / Y)
Thus we can know:
contributing degree of processing trade exports to economic growth= (∆NX 1 ∆Y ) ∗100% ;
△
△
pulling degree of processing trade exports to economic growth= (∆NX 1 ∆Y ) ∗ (∆Y Y ) ;
From the data of Table 3 we can see: first, for the 10 years from 1999 to 2008, the net exports of
processing trade increase, the contributing degree and pulling degree are positive values, the average
contributing degree is 4.599%, the pulling degree is 0.89%.Second, the fluctuations of the general trade
net exports contributing degree and the pulling degree to economic growth are very big. It is even
negative in 1999 and 2003. But generally speaking, compared with general trade, the effect of
processing trade net exports on economic growth is more prominent. This is mainly because deficiencies
in its processing trade impact the leading role in economic growth. Processing trade is the "two out, in
great quantities" economy, the domestic industry chain is short, the domestic economy forward and
backward linkages are limited. And when import a large number raw materials and intermediate
products, this has an impact on domestic raw materials and intermediate goods industries; processing
trade is mainly concentrated in labor-intensive production and processing sectors, their added value is
not high. This problem is universal in China.
Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
average
Table 3 The contributing degree table of processing trade to economic growth
in Shandong Province, unit %
Contributing Degree of
Contributing Degree of
Pulling Degree of
Pulling Degree of
General Trade
Processing Trade
General Trade
Processing Trade
-0.3367
2.3149
-0.024
0.162
9.4985
5.3606
1.091
0.616
10.5253
3.9682
1.104
0.416
3.9386
4.9047
0.465
0.579
-0.1318
2.2408
-0.024
0.400
2.2213
6.2585
0.546
1.537
9.4386
5.3646
1.814
1.346
13.8117
5.0099
3.110
1.128
12.2106
7.3479
2.845
1.712
8.86534
3.2195
2.6843
0.999
7.0041
4.599
1.3611
0.89
Data Source: "Statistical Yearbook of Shandong Province" (2003-2009)
2.3 The linear regression analysis on the effects of processing trade to Economic Growth in
Shandong Province
This paper selects the regional total amount Y (GDP) as the explanatory variables, as the indicators of
reflecting economic growth, selects the processing trade exports total amount X as the explanatory
variables. The range of original sample data is from 1987 to 2008, the 20 years’ data. To maintain unit
consistency with total exports, we converted the Y (GDP) into U.S. dollars according to the current
average price of foreign currency of that year. After plot analysis to these two variables, we find a
positive correlation exists between the two.
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Figure 2. Plot Analysis
5000
4000
3000
Y
2000
1000
0
0
100
200
300
400
500
X
Source: "Statistical Yearbook of Shandong Province" (2000-2008)
Using Eviews5.0 statistical software, we conduct the regression analysis with least squares, and the
following model equations is established:
Y = C1 + C2 ∗ X + U
In which, C1 is a constant dummy variables, including the factors reflected GDP in Shandong except the
processing trade. C2 is the slope of processing trade exports amount, U is the error item. Put the GDP
indicated by U.S. dollars from 1987 to 2008 in Shandong Province and the export volume sample data
of processing trade into the regression models, the results are as follows:
Y = 271.24 + 9.29 * X
（13.04）（68075）
R2=0.99
The regression coefficient t statistic value of independent variable and the constant item pass the
inspection; fit goodness of equation is very good. From the regression equation, we can see: When trade
exports increased by 1 billion U.S. dollars, its GDP will increase by 9.29 million U.S. dollars,
processing trade has a multiplier effect to economic growth of Shandong province.
3.
Conclusion and Suggestion
3.1 Conclusion
From the empirical research results, we can get the following conclusions:
Conclusion one. Processing trade has an important position in foreign trade in Shandong province, and
has a positive contribution and stimulating role to economic growth for a long-term, through the plot
chart, we can find that processing trade exports has significant positive relations with GDP of Shandong
province, and when trade exports increased by 1 billion U.S. dollars, its GDP will increase by 9.29
million U.S. dollars, this reflects that processing trade has a multiplier effect to economic growth in
Shandong province.
Conclusion two. Although processing trade develops rapidly in Shandong province, however, compared
with big foreign trade provinces, such as Guangdong, and Jiangsu, Shandong province still has big gap
with them.
Conclusion three. Processing trade and general trade has almost the same proportion of foreign trade in
Shandong. But from the most years and the average level, the pulling effects of general trade on
economic growth are better than processing trade.
3.2 Suggestions
Shandong Province is still in early stage of development with simple processing and assembly-type,
most of the raw materials and components are obtained by imports, the local sourcing rate of parts and
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components is low. So we should improve the industrial collocation facilities within province, and
actively develop the deep processing of products, extend product processing chain; cultivate leading
enterprises, develop the mating industrial clusters, enhance the aggregation effect of processing trade,
improve the industrial connection, completely change " one in and one out, single process " extensive
development model for processing trade in Shandong, at the same time, encourage R & D cooperation
among enterprises, and promote the optimization and upgrading of the industrial structure of processing
trade, encourage R & D and innovation investment of processing trade enterprises, promote the core
competitiveness of enterprises to transfer from the labor cost advantage to the R & D innovation and
brand, and improve the added value of the enterprises.
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