- International Trade as ‘Footloose’ and Firm-Organized: The Fragmentation of Production in China and a Transactional Trade Approach to Global Value Chains (PDF) (Under Review)
The fragmentation of international production through outsourcing and offshoring raises a host of problems in our ability to conceptualize and measure international trade. Standard trade theory, newer firm heterogeneity literatures and a heterodox literature on global value chains (GVC) offer contending conceptualizations and methodologies. Utilizing a unique Chinese transactional trade database, which records every import and export transaction of every firm in China, this paper finds substantial empirical support for GVC theories that international trade is “driven” by powerful lead firms that coordinate networks of suppliers into distinct trade channels. However, since GVC theories have grown out of firm-level case studies and fieldwork methodologies, they suffer from a micro-macro aggregation problem. This paper helps in overcoming these empirical limitations, builds bridges to other trade theories, estimates the aggregate shares of GVC-organized trade, and raises questions about the foundations of China’s manufacturing and export prowess.
- Between Markets and Institutions: Multinational Enterprises as Actors, and a Production Network Approach to Foreign Direct Investment (PDF) (Under Review)
Since the end of the Cold War, there has been an extraordinary increase in the share of foreign direct investment (FDI) going to developing countries, and political scientists have taken notice. Research has focused on institutional factors, in particular their importance in establishing credible commitments. However, in focusing on institutions, the investors themselves – the multinational enterprises (MNEs) – are largely ignored. This is because the literature models and measures FDI as bilateral economic flows between countries, rather than conceptualizing it as networks of actors, with strategies, goals and the capacity to organize international production. We are missing half the story.
This paper focuses on China, the most successful, large developing country FDI host in absolute terms and relative to its large economy. In the general and China-specific FDI literatures alike, China presents a string of anomalies in both aggregate inward FDI and when it is decomposed, including unusual allocations across industries, MNE modes of entry and by country of origin. Almost without exception, China’s domestic institutions serve as the principal explanations, including ones based on credible commitments.
This paper reconsiders these anomalies through the lens of MNE organization – specifically, their fragmentation of international production through vertically specialized production networks. Using disaggregated and nested data of industries, sub-industries, firms and a unique database of millions of individual trade transactions, the paper re-constructs Chinese FDI and trade data to uncover very consistent patterns of inward FDI that reveals an underlying MNE organizational logic in the restructuring of East Asian production, for which institutional arguments and market forces are unable to account. More importantly, in contrast to institutional accounts which offer diverse explanations for the anomalies, a MNE organizational approach parsimoniously offers leverage across them. By examining the international economy through the reconstruction of disaggregated national data, we can learn something about China, East Asia and the organization of the international economy.
- “Governed” Trade: Value Chains, Firms and the Heterogeneity of Trade in an Era of Fragmented Production (PDF)
(Review of International Political Economy)
Over the past several decades, firms have de-verticalized and internationalized increasingly complex manufacturing and service functions, a phenomenon studied across the social sciences. However, the disciplines disagree over whether the fragmentation of production is substantively novel, requiring amendments to trade theory, or is simply a secular deepening of the international division of labor. Some economists view it as “just trade,” driven by well-known actor-less determinants, such as factor endowments, technology, and returns to scale, while more recent firm heterogeneity trade theories consider firm behavior. By contrast, other heterodox social science approaches differ by focusing on the strategic actions of firms and sector-specific governance as independent drivers which “govern” trade and determine the division of value between countries. This paper develops novel measurements by utilizing unique transactional trade data – the raw firm-level trade transactions that comprise standard inter-country trade statistics – on 439 of China’s largest exporters in eighteen sub-sectors of the electronics and light industries, to examine whether trade is heterogeneously governed in ways theorized by the global value chains (GVC) literature. It finds substantial empirical support for GVC-governed trade, and advances both GVC and firm-centric trade theory along several fronts.
- International Fragmented Production: Conceptualization, Theory and Measurement across Disciplines (PDF)
International fragmented production – the de-verticalization, de-agglomeration and internationalization of firms and industries – poses serious challenges to our ability to accurately conceptualize and measure the international economy. Studied across many disciplines, including economics, geography, international business and sociology, it has generated a variety of empirical and conceptual approaches, oftentimes incongruous, and each with its own policy implications. Due to inter-disciplinary differences and infrequency of communication, there has been no explicit attempt either to delineate the principal junctures of differentiation between literatures, or the emerging areas of overlap and collaboration. This paper identifies three important analytic dimensions by which international fragmentation is differentiated in conceptualization, theory, data collection and measurement: the status of firms, industrial sector organization, and the scope of inter-firm relationships. It finds many important instances of disciplinary literatures relaxing underlying assumptions and adapting new methodologies, thereby opening important areas of unacknowledged inter-disciplinary convergence and allowing for a more complete understanding of the phenomenon.
In studies of the fragmentation and internationalization of production, most value chain approaches consider the inter-firm balance of power as the critical dynamic in development. With the firm as the primary unit of analysis, research long held out two promises: first, bridging the ‘micro-macro gap’ in development theory, meaning making valid inferences from micro-level actors (firms) to macro-sociological outcomes; and second, reconciling its firm-level organizational approach with institutionalism. This paper argues, first, that the literature is artificially constrained in bridging the micro-macro gap due to its delimited conceptualization of ‘power,’ based on the ‘agentic-strategic’ behavior of firms. It argues for broadening the notion of power to bridge the levels of analysis, based on the concept of ‘emergence.’ Second, while institutional critics are correct in criticizing value chain scholarship for its neglect, this paper finds that the effects of institutions are not as consistent or determinative as suggested, and hence, it seeks to expand the scope for incorporating institutionalism. These points are illustrated through an intra-industry comparative study of three textile agro-industries in China.
- Manufacturing Paradoxes: Foreign Ownership, Governance and Value Chains across China’s Light Industries (PDF)
Utilizing Chinese industrial data and detailed transactional trade data, this paper finds two paradoxes. First, the distribution of FDI across value chains in light industries is the opposite of many extant explanations. Second, China’s dominance as an exporter is belied by the weaknesses of its domestic firms within the governance of value chains, with important implications for firm upgrading. By analyzing millions of US Customs Bureau trade transactions, the paradoxes are resolved by examining intermediary contractors in East Asian value chains. Even thirty years after reforms began and in the technologically simplest industries, Chinese firms continue to struggle to break through substantial ‘contractual’ barriers to entry.
- An Application of Data Envelopment Analysis in Evaluating the Overall Efficiency of Firms’ Marketing Decision-Making (with Wang Zhaohua and Yin Jianhua)
2007 Journal of Systems Science and Information Vol. 5:3, pp. 1-11. (Chinese journal)
Articles in Edited Volumes
2011. “Two Tales of Agro-Industrial Transformation: State Capacity in China’s and India’s Textile Industries” in Industrial Dynamics in China and India: Firms, Clusters and Different Growth Paths, edited by Moriki Ohara, M. Vijayabaskar and Hong Lin. New York: Palgrave Macmillan.
2009. “The Agro-Industrial Development of Post-Reform China and India: A Comparative Look along the Textile Production Chain” in Comparing Development Trajectories of the Chinese and Indian Textile Industry, edited by Moriki Ohara and Yoko Asuyama. Chiba, Japan: Institute of Developing Economies, Japan External Trade Organization.
2009. “Contradictions and Catalysts: The Dynamic between China’s Agricultural and Industrial Reforms” (with Lin Hong) in Comparing Development Trajectories of the Chinese and Indian Textile Industry, edited by Moriki Ohara and Yoko Asuyama. Chiba, Japan: Institute of
2013. “State Capacity in China’s and India’s Textile Industries,” in Industrial Dynamics in India and China: Comparing the Growth Processes of Indigenous Firms and Clusters,RINDAS International Symposium, Ryukoku University, Kyoto, Japan.
2008. “Boom and Bust: the First Wave of Industrialization in China’s Post-Reform Textile and Apparel Industries.” IDE-JETRO China-India Comparative Industrialization Project.
2004. “The Chinese Economy in Global Markets and Its Future Challenges.” Global Business Network, a Member of the Monitor Group.
2012. Review of Vu Tuong, Paths to Development in Asia: South Korea, Vietnam, China and Indonesia, in the Journal of East Asian Studies, Vol. 12, Issue 1, pp. 156-158.
2010. Review of Edward Friedman and Bruce Gilley, eds. Asia’s Giants: Comparing China and India in the Journal of Chinese Political Science, Vol. 15, Issue 1, pp.119.