Rich-country Effect on the Quality Upgrading of China’s Exports

Based on the firm-product level exports quality index provided by YuMiaojie and ZhangRui (2017), this paper examines the effect of destination countries and Chinese wage growth on the quality growth of Chinese exports during the year of 2000-06. Empirical results show that the contribution of destination countries wage growth to Chinese exports quality growth stems mainly from developed countries rather than developing countries, which tells the “rich-country effect” and isn’t affected by industry type. As for the mechanism, the spillover of developed countries acts on Chinese exports’ quality through the factor-substitution effect rather than the income effect, explaining why wage growth in developing countries contributes little. Besides, such a spillover effect works via entry-exit mechanism among Chinese exports, while quality growth of those continuously exporting is weak. In addition, the general wage growth in China contributes to the growth of exports quality universally, exhibiting the domestic competition effect. These conclusions reflect China’s role of “world factory” in the early years of joining the World Trade Organization, as well as the enormous pressure of trade transformation nowadays.