Chinese manufacturing on the move: Factor supply or market access?

This paper examines recent trends in the location of manufacturing activities in China using a model that combines forces relating to Heckscher-Ohlin (H-O) and New Economic Geography (NEG). It is found that there are large intercity shifts in industrial employment since 1998 in China, with the overall redistribution being towards coastal cities. Our investigation of the determinants of locational change in Chinese industries suggests that market access based on NEG theories played a key role in industrial location especially in the post-WTO period, while there is evidence of H-O arguments associated with factor supply in previous years.

► We have examined the recent changes in the location of industries in China in two time periods, 1998-2001 and 2002-2009. The reason of such interval chosen is that we want to look at whether China's entry into the WTO has changed the driving forces of industrial location across cities. ► We have employed SUR estimation to see whether the sings and magnitudes of the coefficients of H-O- and NEG-type interactions in the post-WTO period significantly differ from those in the previous years. ► The main conclusion is that both factor supply based on H-O theories and market access related to NEG jointly influence the location of industries in China and there is a dominant impact of market access on the change of industrial location in the post-WTO period.