Congested Export Spillover in China

• Date: 01 February 2016
• Author: Ligang Song,Qun Bao,Ninghua Ye
• Published date: 01 February 2016
• DOI: http://doi.org/10.1111/rode.12214

Congested Export Spillover in China

Qun Bao, Ninghua Ye, and Ligang Song*

Abstract

This paper uses Chinese firm-level data to investigate the possible nonlinear spillover caused by export

congestion. We argue that there could exist an inverted-U curve in terms of export spillover effect,

resulting from the fact that once exporters become over-agglomerated, export congestion is likely to

cause negative export spillover. The estimation results support the hypothesis of an inverted-U curve of

export spillover effect. Further calculation shows that the degree of Chinese exporters’ congestion

approximately ranges around 17–34% and demonstrates an increasing trend over time. The finding

suggests that policies aimed at reducing export congestion such as industrial upgrading, improvement of

firms’ efficiency and the current shift from export dependence towards domestic demand would be

important for a more healthy development of China’s exports in the future.

1. Introduction

Evidence of positive export spillover effects especially those associated with foreign

investment abounds in the literature. It states that the more the exporters

agglomerate, the greater the export spillover effect will be. For example, incumbent

exporters may act as demonstrators bringing to others export information and

experience in international markets (the demonstration effect). It is reasonable to

accept such positive spillover hypothesis among exporters, and a great number of

empirical tests have shown evidence of the positive export spillover effect (Aitken

et al., 1997; Greenaway et al., 2004; Kneller and Pisu, 2007; Greenaway and

Kneller, 2008; Koenig et al., 2010).

1

Contrary to the widely supported positive export spillover, this paper aims to test

whether there exists a congested export spillover effect taking Chinese exporters as

a case study. Our key argument is that positive export spillover occurs when export

takes place initially with a limited scale. However, with an excessive trade

expansion, the possible congestion of exporters may lead to a negative export

spillover, thereby causing a nonlinear relationship with export spillover to exist.

The nonlinear export spillover effect may be a result of the following.

First, an increasing number of exporters have produced largely low quality and

homogeneous manufacturing goods and agglomerated in narrower geographical

areas mainly along the eastern coast as a result of China’s trade liberalization.

These exporters tend to compete with each other and even encroach on the export

potential and survival space of one another in foreign markets mainly through price

competition. As a result, profit margins from engaging in exporting have been

squeezed for everyone, but especially for new exporters, unless they produce and

*Song: Crawford School of Public Policy, The Australian National University, Canberra, Australia. Tel:

+61-2-6125-3315; E-mail: ligang.song@anu.edu.au. Bao: Nankai University, Tianjin, China. Ye: Department

of International Economics, Xiamen University, China. Bao acknowledges the financial support from

Chinese Natural Science Fund (Grant No. 71473136), Huo Yingdong Fund (Grant No. 141083) and

Younger Excellent Scholarship (Grant No. NCET-11-0248). Song acknowledges the financial support for

his research by the Rio Tinto–ANU China Partnership.

Review of Development Economics, 20(1), 272–282, 2016

DOI:10.1111/rode.12214

©2016 John Wiley & Sons Ltd