Assignment # 2

O R I G I N A L P A P E R

China’s fare share? The growth of Chinese exports in world trade

Steven Husted • Shuichiro Nishioka

Published online: 6 February 2013

� Kiel Institute 2013

Abstract The growth of Chinese exports in market share over the past two dec- ades is a singular event in the history of world trade. Using data from 1995–2010,

we document this growth in a variety of ways. We show that the expanded trade is

pervasive. Virtually every country in the world has seen China claim a larger share

of its import market. Then, we use Constant Market Share analysis to determine

which country or countries have lost market share as China’s trade has grown.

Contrary to much discussion in the popular press, we find strong evidence that other

developing countries have not seen export shares fall as a result of China’s gains.

Rather, our results suggest that China’s share growth has come largely at the

expense of exporters based in developed countries, especially Japan and the United

States.

Keywords Chinese exports � Constant market share analysis � Export shares

JEL Classification F14 � P33

1 Introduction

Over the past two decades the Chinese economy has grown at a remarkable pace.

Between 1995 and 2007 Chinese real GDP grew at an average annual rate of more

S. Husted (&) Department of Economics, University of Pittsburgh,

4508 WW Posvar Hall, Pittsburgh, PA 15216, USA

e-mail: [email protected]

S. Nishioka

Department of Economics, West Virginia University,

1601 University Avenue, Morgantown, WV 26506-6025, USA

e-mail: [email protected]

123

Rev World Econ (2013) 149:565–585

DOI 10.1007/s10290-013-0149-2

than 10 %. Per capita real GDP rose by 250 % over this period. 1

One of the leading

factors driving this economic growth has been the extraordinary performance of

Chinese exports. According to the World Trade Organization (WTO), in 2010 China

ranked first in exports to the world market with merchandise export sales of more

than $1.5 trillion and a world market share of 10.4 %. In 1998, China had less than

2 % of the world market. Twenty years earlier, China’s share was essentially zero.

As China’s share of world exports has grown, it has come under increasing pressure

to allow its currency to appreciate; often the criticism of its exchange rate practices

includes charges that other developing and emerging market economies have borne

the brunt in terms of lost export markets. 2

The purpose of this paper is to provide an analysis of Chinese export growth over

the period when its share of world exports rose most rapidly, the years 1995–2010.

We provide detail on the commodity composition of Chinese exports and how this

composition has changed. We also discuss some aspects of the geographic pattern

and commodity composition of Chinese trade. In addition, a fundamental

contribution of this paper is that we provide considerable evidence that the

principal exporting countries that have lost market share to China are developed

countries, especially Japan and the United States.

We use Constant Market Share (CMS) analysis (i.e., Fagerberg and Sollie 1987)

to determine which of five factors (i.e., market share, commodity composition,

commodity adaptation, market composition, and market adaptation) are responsible

for the rise of Chinese share. During the period we consider, the market share effect

is the critical factor to explain the share change in the world trade. This element of

trade growth captures the extent to which an exporter gains or loses market share

against other exporters independent of changes in the product and destination

pattern of world imports. In particular, almost all share gains of China over the

period 1995–2010 (i.e., the market share effect accounts for 11.6 of 12.9 percentage

points (pp.) of Chinese share gains) stem from the market share effects. 3

We also apply CMS analysis to the sub-periods of 1995–2000, 2000–2005, and

2005–2010. In the period of 1995–2000, the share gain of China was relatively moderate

(2.9 pp.) and Japan and Germany lost market share in roughly equal amounts (2.4 and

2.2 pp., respectively). The United States also saw its world export market share rise

during this period, due primarily to the commodity composition effect. That is, the United

States gained market share because the structure of world import demand changed toward

the types of goods that the United States exports. During the period 2000–2005, Chinese

market share increased by 5.8 pp. and the majority of Chinese share gains were

accompanied by the significant market share loss of the United States (-4.0 pp.). Finally,

over the sub-period (2005–2010) that included the great trade collapse of 2008–2009,

1 These numbers use China Version 2 data from the PWT6.3 data set. See ‘‘What is New in PWT 6.3?’’

link on the Penn World Tables site, http://pwt.econ.upenn.edu/php_site/pwt_index.php, for a discussion

of the differences between this version of Chinese data and official Chinese data. 2

See, for instance, Arvin Subramanian, ‘‘Who Pays for the Weak Renminbi?’’, 11 February 2010, Vox

Front Page, http://www.voxeu.org/index.php?q=node/4604. 3

With the exception of Sect. 2, the discussion of share changes in the remainder of this section and the

rest of the paper refers to trade in manufactured goods (SITC categories 5–9) among a sample of 92

countries and Hong Kong.

566 S. Husted, S. Nishioka

123

China’s share increased by 4.2 pp. and the market share and commodity adaptation

effects both explain the share changes. While developed countries’ demands for

manufacturing goods had slowed due to the financial crisis, developing countries’

demands for foreign manufacturing goods were relatively strong. China had increased its

world market share by exporting intensively to emerging developing countries. 4

The rest of the paper proceeds as follows. In Sect. 2 we present an overview of

Chinese trade expansion. In Sect. 3 we discuss CMS analysis, an empirical

technique that provides a method for studying changes in export market shares. In

Sect. 4, we apply CMS to study trade patterns among a sample of 94 countries over

the period 1995–2010 in commodity trade disaggregated at the 5-digit SITC level.

We also apply CMS to study the periods to 1995–2000, 2000–2005, and 2005–2010.

In Sect. 5, we expand our analysis by focusing on export behavior across industries

and in individual export markets. Section 6 offers our conclusions.

2 An overview of Chinese export performance

Figure 1 provides a time series plot of world export shares for five of the world’s

leading exporting countries, Germany, China, Japan, the United Kingdom, and the

United States over the post World War II era. As the figure shows, since the end of

World War II, only Germany has seen as rapid and as large a rise in world export

share as China. In the eleven year span from 1948 to 1958, Germany’s share of world

exports rose from 1.3 to 10.3 %, roughly matching in both magnitude and duration

China’s performance. However there are several major differences between the two.

First, Germany’s growth almost certainly represented a return for that country to a

market position similar to the one that it had held prior to the war era. Second, at the

time of Germany’s significant growth there were far fewer major exporters

competing for market share. For instance, in the 1950s the combined world export

share of the countries now known as the Asian Newly Industrialized Countries

(NICs) (Korea, Malaysia, Singapore, and Thailand) was virtually zero. In contrast,

since at least the onset of the industrial revolution and prior to the 1990s, China had

never held a significant share of world trade. And, China’s export growth came only

slightly after significant growth by the NICs and simultaneously with major growth

by several other countries that along with China make up the BRICs (Brazil, Russia,

and India), all of whom now also hold relatively large shares of the world market.

Like all major exporting countries, China has a market presence in virtually

every country in the world; this presence has grown in almost every market in recent

years. Using data from the United Nation’s Commodity Trade Statistics Database

we calculated aggregate exporter market shares in 92 countries and 1 territory

(Hong Kong), from all parts of the world. 5

Several interesting patterns emerge from

4 In a related study, Wood and Mayer (2011) look at how the entry of China into international markets

over the past three decades has impacted production of primary and labor-intensive products in a wide set

of developing countries. They find that although output and exports of labor-intensive goods continued to

rise following the emergence of China in the 1990s, the growth in these ratios was slower in the 1990s

than in the 1980s. 5

These countries were chosen due to the availability of the import data from UN Comtrade.

China’s fare share 567

123

this exercise. First, the global extent of China’s trade expanded significantly

between 1995 and 2010. By 2010, China had at least 3 % of the market in all of

these countries. Moreover, market share growth was pervasive; over the 1995–2010

period China’s market share grew in all of these markets. In many cases, especially

in South America, Africa, and smaller European countries, shares were essentially

zero prior to 1995. Table 1 provides some additional summary statistics.

According to the table, geography is clearly important for China’s trade. At the

end of 2010, its highest regional market share was in Asia where among the sample

countries it had an average share of 18.9 %. Its highest market share among all the

Asian countries in the sample stood at 49.1 %. 6

Its next highest average regional

market share was in North America; this included 16.7 % of all U.S. merchandise

Table 1 China’s national export market share by region

Countries 2010 national market shares (%) Share changes 1995–2010 a

Average SD Maximum Minimum Average SD Maximum Minimum

Africa 20 15.9 9.3 49.1 6.2 13.0 9.1 45.5 3.1

Asia and Pacific 13 18.9 10.7 49.1 4.2 11.8 3.4 15.9 3.8

Europe 31 9.4 6.5 36.0 3.1 8.0 6.0 33.4 2.4

Middle East 7 12.0 1.1 13.3 10.2 10.2 0.7 11.0 9.0

North America 3 16.4 5.2 21.9 11.6 13.1 2.6 15.0 9.5

South America 19 12.7 7.7 35.1 5.2 11.7 7.4 35.1 4.2

Total 93 13.2 8.4 49.1 3.1 10.7 6.9 35.1 2.4

a Share changes are measured in percentage points

0

5

10

15

20

25

30

19 48

19 50

19 52

19 54

19 56

19 58

19 60

19 62

19 64

19 66

19 68

19 70

19 72

19 74

19 76

19 78

19 80

19 82

19 84

19 86

19 88

19 90

19 92

19 94

19 96

19 98

20 00

20 02

20 04

20 06

20 08

20 10

% o

f w

or ld

e xp

or ts

CHINA

GERMANY

JAPAN

UK

US

Fig. 1 World market export shares 1948–2010

6 This was China’s share of Hong Kong’s market. Among the other Asian countries in this sample China

had more than 25% of Japan’s market in 2010 and more than 10% of the export markets of Thailand,

South Korea, Pakistan, and Singapore.

568 S. Husted, S. Nishioka

123

imports in 2010. On average, China’s smallest regional market penetration was in

Europe, where its average national market share in 2010 was 9.4 %. Since 2005,

China’s export shares have increased particularly in remote and low-income

countries. For example, the average of China’s export shares in African countries

increased from 8.3 to 15.9 %. For the South American countries in our sample,

China’s average market share almost doubled, rising from 6.6 to 12.7 %.

As detailed more fully below, China’s export market share has grown in recent

years, and it has changed the mix of goods it supplies to world markets. By value,

virtually all of Chinese exports are manufactured goods. Early on, these exports

were concentrated in Miscellaneous Manufactured Articles (SITC Category 8),

including apparel and toys. While that category still accounts for a significant share

of Chinese exports, more recently Chinese trade growth has been concentrated in

Machinery and Transport Equipment (SITC Category 7).

In order to better focus on this change in the commodity composition of trade, we

restrict our attention to exports of differentiated manufactured products disaggre-

gated at the 5-digit SITC level. In much of what follows we continue to analyze data

from a set of 94 countries. 7

Our sample includes countries from every continent and

includes countries at various standards of living; slightly more than one-third the

countries chosen in our sample are classified by the World Bank as high-income

countries. In 2010, the countries used in our analysis accounted for 76.8 % of total

world imports. 8

Trade among these countries accounted for a majority of all world

merchandise trade in each of the years in our sample.

The first panel of Table 2 provides detail on the composition of Chinese exports

in 1995 and 2010 across broad categories of goods to our sample of markets as well

as the countries identified as developing countries. 9

Also included in the table is

China’s portion of total world exports at the 1-digit level (SITC Rev.3) in 1995 and

2010. As the table shows, Chinese exports have been centered in manufactures for

some time. In 1995, 90 % of Chinese exports to our sample countries came from

industries classified in SITC sections 5–9. By 2010, that share had risen to almost

95 % of total exports. Traditionally, Chinese exports have been concentrated in

Miscellaneous Manufactured Articles (SITC Category 8). This sector includes many

labor intensive manufactured products such as clothing, footwear, and toys, items

7 In addition to China, we use the following countries: (Africa) Algeria, Burkina Faso, Burundi,

Cameroon, Côte d’Ivoire, Egypt, Ethiopia, Gambia, Kenya, Madagascar, Malawi, Mauritius, Morocco,

Mozambique, Niger, Togo, Tunisia, Uganda, Tanzania, and Zambia; (Asia and Pacific) Australia, Hong

Kong, India, Indonesia, Japan, South Korea, Malaysia, Maldives, New Zealand, Pakistan, the Philippines,

Singapore, and Thailand; (Europe) Austria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia,

Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Kazakhstan, Kyrgyzstan, Latvia,

Lithuania, Malta, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia,

Spain, Sweden, Switzerland, and the United Kingdom; (Middle East) Bahrain, Israel, Jordan, Oman,

Qatar, Saudi Arabia, and Turkey; (North America) Canada, Mexico, and the United States; (Central and

South America) Argentina, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominica,

Ecuador, El Salvador, Guatemala, Jamaica, Nicaragua, Panama, Paraguay, Peru, Suriname, and

Venezuela. 8

Our data set consists of bilateral trade of 93 countries. We calculate the total world imports from the

sum of total imports of all available countries in UN Comtrade. 9

Developing countries are those not classified as being a high-income country by the World Bank in its

2009 World Development Report.

China’s fare share 569

123

long identified as characteristic examples of Chinese exports. Twenty seven percent

of Chinese exports to our sample countries in 2010 came from this sector. However,

this share had stood at 47 % of total exports to these markets in 1995. Instead, in

recent years, the share of Chinese exports of more sophisticated manufactures has

risen substantially with exports in Machinery and Transport Equipment (SITC

Category 7) more than doubling to 51 % of its exports to the sample markets.

The period 2005–2010 includes the onset of the Great Recession in the United

States and elsewhere and the consequent 2008–2009 collapse in world trade. 10

As

Table 2 Structure of world exports and imports

SITC Rev 3 Commodities I. Composition of

Chinese exports all

countries

II. China’s shares in

world (China’s/World

exports)

1995 2010 1995 2010

(a) Structure of Chinese exports

0 Food and live animals 4.5 2.0 3.4 5.0

1 Beverages and tobacco 0.4 0.1 2.4 1.9

2 Crude materials 2.4 0.8 2.8 2.3

3 Mineral fuels 2.4 1.0 2.3 1.3

4 Animal and vegetable oils 0.1 0.0 1.1 0.6

5 Chemicals and related products 3.9 4.7 2.2 5.8

6 Manufactured goods (materials) 15.3 12.6 5.5 15.0

7 Machinery and transport equipment 23.2 50.8 3.1 19.0

8 Miscellaneous manufactured articles 47.3 27.4 18.9 33.3

9 Other commodities 0.5 0.8 1.0 3.8

SITC Rev 3 Commodities III. The levels of total imports (2005 = 1)

Developing countries Developed countries

1995 2010 1995 2010

(b) Structure of world imports

0 Food and live animals 0.789 1.647 0.788 1.642

1 Beverages and tobacco 1.296 2.108 1.840 1.853

2 Crude materials 0.360 1.728 0.533 1.533

3 Mineral fuels 0.248 2.729 0.542 3.748

4 Animal and vegetable oils 0.495 1.345 0.935 1.692

5 Chemicals and related products 0.448 1.703 0.629 1.319

6 Manufactured goods (materials) 0.583 1.684 0.841 1.283

7 Machinery and transport equipment 0.561 1.558 0.867 0.934

8 Miscellaneous manufactured articles 0.391 1.622 0.843 1.022

9 Other commodities 2.841 1.471 0.536 1.394

We use import data of 94 countries for panels I and II

10 For detail on this period see Richard Baldwin, The Great Trade Collapse: Causes, Consequences, and

Prospects, VoxEU eBook, 2009, http://www.voxeu.org/index.php?q=node/4297.

570 S. Husted, S. Nishioka

123

has been documented by the Nabli (2010) developing countries have rebounded

much more strongly from the downturn, and these countries have accounted for

much of the growth in trade over the past several years. This pattern shows up well

in the second panel of Table 2 where we document the levels of imports for

developing and developed countries for each product group. We set the import

values of year 2005 as 1. For example, while the import values of Category 7

increased from 1 in 2005 to 1.558 in 2010 and those of Category 8 increased from 1

to 1.622 for developing markets, the corresponding values are 0.934 and 1.022 for

exports to developed country markets.

China’s world market shares changes over this period followed the transforma-

tion described above. Between 1995 and 2010, its share of Industry 7 exports to the

world increased by a factor of six, while its Industry 8 market share increased by

slightly less than 15 pp. We are not the first to point out the recent growth in the

sophistication of Chinese exports. Rodrik (2006, p. 4) calculates that by 2002 China

had an export bundle ‘‘of a country with an income per capita level three times

higher than China’s’’. In a related study, Schott (2008) focuses on Chinese exports

to the United States. He finds that the composition of this export bundle

‘‘increasingly overlaps with that of the world’s most developed economies’’ (Schott

2008, p. 34).

The data in Tables 1 and 2 document the growth of Chinese exports and the

change in the sectoral composition of these goods over the period 1995–2010.

Clearly, the rapid growth of China in the world market has had market share

implications for other exporting nations. A number of papers have focused on

various aspects of the recent growth of Chinese exports on global competition.

One focus of attention has been on whether the growth has occurred due to an

expansion of the variety of goods exported (the extensive margin) or a growth in

trade of existing varieties (the intensive margin). Broda and Weinstein (2006) find

that over the last quarter of the twentieth century roughly 30 % of U.S. import

growth was at the extensive margin, with China the largest contributor. However,

using Chinese export data disaggregated at the HS-8 level, Amiti and Freund (2010)

report that most of Chinese export growth to the world between 1997 and 2005 was

in existing varieties. Most recently, Manova and Zhang (2009) using firm level data

on Chinese trading firms find that a relatively few large firms are responsible for

substantial share of exports; these firms export to many markets, and many are

foreign owned.

A principal focus of our paper is on which other exporting countries are losing

foreign markets due to the rise of China. Other papers have also attempted to

address this question. Using a gravity model, Hanson and Robertson (2010) study

ten developing countries they identify as potential losers to Chinese competition.

However, they find Chinese export expansion over the 1995–2005 period has had

only a modest negative impact on the exports of these other countries. In an earlier

study, Ahearne et al. (2003) use VAR analysis to see if Chinese exports reduce the

exports of other Asian economies. They find instead a positive correlation between

exports from these two sources. These findings along with the industry classifica-

tions of Chinese exports suggest that major competing countries with China in

world export markets may be developed rather than developing countries. In the

China’s fare share 571

123

remainder of this paper, we try to identify which countries have lost share and to

provide a measure of the size of the losses. We also focus on the growth of Chinese

exports at broad industry levels and in individual export markets. We turn now to

describe the modeling strategy we employ to answer these questions.

3 Market shares methodology

Constant Market Share (CMS) analysis has long been used to study export

performance. 11

This modeling approach treats as a norm of behavior that a country’s

market share will remain constant over time. If instead it changes, that must be due

to changes in competitiveness or changes in demand from the world as a whole or in

individual markets. The analysis then proceeds to decompose export share changes

in order to identify these factors. In the 1950s and 1960s, CMS was a popular tool of

analysis. In a well-known paper, however, Richardson (1971) criticized its use,

arguing that the signs and magnitudes of the measured effects depend upon in part

on the methods used in their calculation.

Taking these criticisms into account, Fagerberg and Sollie (1987) (hereafter FS) have

proposed several refinements to traditional CMS analysis. These include improved

theoretical consistency via the use of Laspeyres weights throughout and an explicit

economic interpretation of all decomposed terms. They have also extended the

traditional model to include two additional terms which measure the adaptability of the

export sector of a country to changes in the commodity and national market composition

of world exports. 12

We now turn to a brief derivation of their model.

First, consider the change in exporters’ shares in each importer’s market. We

define the value of imports of product i from country k to l is defined as mi kl

. The

market share of country k (an exporter) in product i in market l (an importer) is

akli ¼ m kl i = X

k

mkli ð1Þ

Product i’s share of country l’s total imports is defined as

bli ¼ X

k

mkli = X

i

X

k

mkli ð2Þ

Since the market share of country k is written as

Mkl ¼ X

i

akli b l i;

the change in country k’s share of market l between an initial year (time 0) and

year t is

DMkl ¼ Mklt � M kl 0 :

11 See Leamer and Stern (1970) Chapter 7 for a derivation of the original model and the references

therein for examples of its use. 12

Irwin (1995) uses the FS approach to study changes in the export market share of Great Britain in the

early twentieth century.

572 S. Husted, S. Nishioka

123

This equation can be rewritten as the sum of three terms:

DMkl ¼ DMkla þ DM kl b þ DM

kl ab ð3Þ

where

DMkla ¼ X

i

ðaklit � a kl i0Þb

l i0 ð4Þ

DMklb ¼ X

i

akli0ðb l it � b

l i0Þ ð5Þ

DMklab ¼ X

i

ðaklit � a kl i0Þðb

l it � b

l i0Þ ð6Þ

Equation (4) is the effect of changes in the market share, weighting the change in

exporter k’s share of product i exports by the initial share of the product in market l.

Equation (5) is the effect of changes in the product composition of importer l,

weighted by the initial share of the product from country k. The final term, Eq. (6),

is a residual term which can be written as

DMklab ¼ r kl ab

X

i

ðaklit � �a kl t � a

kl i0 þ �a

kl 0 Þ

2

" #0:5 X

i

ðblit � b l i0Þ

2

" #0:5 ð7Þ

where rklab is the correlation coefficient between the changes in market shares and the

changes in product shares.

FS then extend the decomposition exercise from one market to the world market.

The country l’s share of world imports is defined as:

cl ¼ X

k

X

i

mkli = X

k

X

l

X

i

mkli ð8Þ

In this case, we can write the market share of county k in world market as

Mk ¼ X

l

Mklcl:

The change in M k

between time 0 and time t is

DMk ¼ DMkm þ DM k c þ DM

k mc

¼ DMka þ DM k b þ DM

k ab þ DM

k c þ DM

k mc

where

DMka ¼ X

l

cl0

X

i

ðaklit � a kl i0Þb

l i0

" # ð9Þ

DMkb ¼ X

l

cl0

X

i

akli0ðb l it � b

l i0Þ

" # ð10Þ

DMkab ¼ X

l

cl0

X

i

ðaklit � a kl i0Þðb

l it � b

l i0Þ

" # ð11Þ

China’s fare share 573

123

DMkc ¼ X

l

Mkl0 ðc l t � c

l 0Þ ð12Þ

DMkmc ¼ X

l

ðMklt � M kl 0 Þðc

l t � c

l 0Þ ð13Þ

Our analysis focuses on Eqs. (9)–(13); following FS, each can be interpreted as a

separate factor that influences export performance.

Equation (9) is the market share effect. This term captures the change in an

exporter’s share of each product in each country, holding constant the initial

commodity composition and the country distribution of world imports. Thus, it

captures the extent to which an exporter gains market share independent of changes

in the product and destination pattern of world imports. Equation (10) is the

commodity composition effect. The commodity composition effect measures the

influence of the changing share of products in world trade on an exporter’s overall

share. If, for instance, the structure of world imports changes towards more

manufactured goods and away from agricultural products, the exporters of

manufactured goods (agricultural goods) would see an increase (a decrease) in

their market shares.

Equation (11) is the commodity adaptation effect. The commodity adaptation

effect identifies whether the change in the structure of a country’s exports is

correlated with changes in the commodity composition of world imports. This

number is zero if the country changes its export structure at the same rate as all

countries exporting to the world market. Equation (12) is the market composition

effect. This effect measures the influence of changes in the country demand pattern

of world imports. Thus, it identifies the countries that increase their world market

share by selling their products heavily in expanding markets. Finally, Eq. (13) is the

market adaptation effect. This effect captures the correlation between a country’s

export destinations and world export destinations.

4 Empirical results from the CMS approach

4.1 Share changes from 1995 to 2010

For each country in our study, the change in market share of the world market is

decomposed into the five effects discussed above. The results from 1,832 products

for regional exports and a selected set of countries are given in Table 3. 13

The right-

most column in table provides the overall percentage change in the total sample

export market share for each of the regions and sample countries over the period

13 We concentrate on 1,832 5-digit exports of goods that Rauch (1999) and Hallak (2006) define as

differentiated products at the 3-digit level. To be consistent across 93 countries for years 1995, 2000,

2005, and 2010, we use the 5-digit level data, which is the highest disaggregation possible for our study.

Most of these products are from 1-digit SITC sectors of 5–8. Since there are gaps in 5-digit sub-products

673 and 676 (some types of iron and steel products), we exclude products from these two sectors. We

study the CMS decomposition for the country and region level separately. While we use 93 countries for

each of l and k for the country-level analysis, we use the country aggregates of 6 regions for each of l and

k for the regional analysis.

574 S. Husted, S. Nishioka

123

1995–2010. 14

The other five columns represent different effects, corresponding to

Eqs. (9)–(13), and add up to the total change.

The first thing to note about the table is that for most countries in the study, overall

export shares hardly changed over the sample period (see the last column). This

stability of trade shares is a stylized fact of trade patterns at the bilateral level first

pointed out and analyzed by Cassing and Husted (2004, 2009) in two related studies.

The principal exceptions to this pattern of export share stability over the sample period

are China (?12.87 pp.), Japan (-5.28 pp.) and the United States (-4.29 pp.), and four

European countries (Germany, France, Italy, and the United Kingdom) combined

(-5.25 pp.). These results clearly imply that the growth in Chinese export market share

has come largely at the expense of exporters in developed countries, in particular Japan

and the United States, rather than exporters in developing countries. Since Canada also

lost market share, each of the G7 countries saw market shares drop over this period,

several by more than one percentage point. In fact, the G7 countries explain around 80

percent of all the share losses. We turn now to discuss what factors have contributed to

these changes in trade shares.

Table 3 Export market share change decomposition: selected countries (1995–2010)

Fagerberg and Sollie decomposition (1,832 SITC 5-digit products)

Market

share

Commodity

composition

Commodity

adaptation

Market

composition

Market

adaptation

Total change

in share

Africa 0.111 -0.059 0.033 0.011 0.011 0.108

Kenya 0.000 -0.002 -0.002 0.006 -0.003 -0.001

Asia and Pacific 5.353 -3.995 5.078 -0.068 0.350 6.719

China 11.594 -0.808 3.048 -1.131 0.163 12.867

India 0.676 0.038 0.114 -0.061 -0.012 0.755

Indonesia 0.266 -0.029 0.011 -0.039 -0.065 0.145

Japan -6.450 -1.359 1.767 0.369 0.396 -5.277

Malaysia -0.640 -0.396 0.520 -0.381 0.232 -0.665

South Korea -0.993 -1.051 1.775 0.130 0.661 0.523

Europe -6.499 2.293 1.258 -0.129 -0.260 -3.337

France -1.539 0.307 0.201 0.050 -0.037 -1.018

Germany -1.704 0.148 0.152 0.644 -0.178 -0.938

Italy -1.267 -0.281 -0.163 0.228 -0.131 -1.616

United Kingdom -2.011 0.864 -0.337 -0.130 -0.065 -1.680

North America -6.155 1.525 0.311 0.021 -0.123 -4.420

Canada -1.173 0.201 0.139 -0.169 0.025 -0.977

Mexico 0.732 0.055 0.283 -0.132 -0.091 0.847

United States -5.977 0.808 0.979 0.284 -0.383 -4.290

South America 0.231 0.063 -0.169 0.165 0.003 0.293

Brazil -0.021 0.020 0.028 0.031 0.025 0.083

Middle East 0.476 0.146 -0.003 0.000 0.018 0.637

For the regional-level analysis, we use the country aggregates of 6 regions for k and l

14 Values for the countries not listed in Table 3 tended to be very small. They are available on request.

China’s fare share 575

123

First, according to the decomposition reported in the table, the market share

effect appears to be responsible for most of the changes in export performance by

the countries in our sample. During the period from 1995 to 2010, the market share

effect was strongly positive for China (?11.59 pp.) and strongly negative for

Japan (-6.45 pp.) and the United States (-5.98 pp.). With few exceptions, the

commodity composition effect, the market composition effect, the commodity

adaptation effect, and the market adaptation effect play only small roles in

explaining the changes in world trade shares. In the case of China, while the

commodity adaptation effect (?3.05 pp.) contributes to the gain of Chinese

market share, the remaining effects do not play significant roles. The fact that the

market share effect played such an important role in China’s export share gain is

consistent with Amiti and Freund’s (2010) findings that China’s export growth

was largely at the intensive margin. 15

Consistent with the findings of Hanson and Robertson (2010), developing

countries such as Brazil, India, Indonesia, and Mexico did not lose their market

shares in this period despite China’s export growth. Indeed, all saw their shares rise,

although by much smaller amounts than China’s increase. Again, as was the case

with China, Japan, and the United States, the market share effect appears to have

been the primary factor responsible for the change in total market share.

Why, in particular, are market share losses to China concentrated in Japan and

the United States? One answer may be outsourcing by exporters in these two

countries to firms in China. As noted, without identifying the countries involved,

Manova and Zhang (2009) report that ‘‘Chinese joint ventures and affiliates of

foreign multinationals were responsible for fully 75 %’’ of the increase in China’s

trade flows between 2003 and 2005 (Manova and Zhang 2009, p. 2). We have no

way to identify which countries host the parent companies of these firms although

there is considerable evidence that Japanese firms may be involved. Tomiura (2008)

reports that in recent years China has been the destination country for more than half

of all the outsourcing done by Japanese firms.

Evidence that FDI may be responsible for lost U.S. export share is much less

strong. Branstetter and Foley (2007) assert that U.S. FDI in China is only an

extremely small portion of total U.S. FDI activity. Moreover, they argue that more

than 90 % of the production of U.S. affiliates in China is sold in China rather than

exported to the United States or other markets. Thus, for the United States, FDI in

China is at most only responsible for a share decline in the Chinese market although

we have no way to examine outsourcing between unaffiliated firms. While FDI may

not be directly responsible for U.S. market share losses, it is likely that outsourcing

of assembly and production to non-related Chinese firms may play an important

role. In Sect. 5 we discuss this point further.

4.2 Share changes within sub-periods

Table 4a–c provide detail on market share changes for the three sub-periods of our

sample, 1995–2000, 2000–2005, and 2005–2010, respectively. As we saw in the

15 We explore this point in depth below.

576 S. Husted, S. Nishioka

123

Table 4 Export market share change decomposition: selected countries

Fagerberg and Sollie decomposition (1,832 SITC 5-digit products)

Market

share

Commodity

composition

Commodity

adaptation

Market

composition

Market

adaptation

Total change

in share

(a) 1995–2000

Asia and Pacific 1.333 -0.551 0.276 0.408 -0.404 1.062

China 3.192 -0.190 0.030 -0.115 0.017 2.935

Japan -1.972 -0.304 -0.093 0.049 -0.119 -2.440

Europe -2.176 -1.261 -0.012 -1.780 0.200 -5.030

France -0.404 -0.239 0.122 -0.228 0.065 -0.685

Germany -1.259 -0.684 -0.013 -0.330 0.109 -2.177

Italy -0.439 -0.621 -0.090 -0.264 0.090 -1.323

United Kingdom -0.278 0.348 -0.113 -0.165 0.053 -0.155

North America 0.490 1.930 -0.192 1.351 0.190 3.768

Canada -0.034 0.197 0.080 0.497 0.052 0.792

Mexico 0.603 0.051 0.065 0.319 0.116 1.154

USA -0.539 1.509 -0.077 1.089 -0.160 1.823

(b) 2000–2005

Asia and Pacific 5.049 -1.377 0.288 0.215 -0.036 4.139

China 6.446 -0.426 0.306 -0.493 -0.067 5.766

Japan -2.137 -0.171 0.024 0.473 -0.046 -1.857

Europe -0.397 1.669 -0.148 1.202 -0.072 2.254

France -0.353 0.267 -0.086 0.209 -0.045 -0.007

Germany 0.435 0.322 -0.152 0.571 -0.094 1.082

Italy -0.116 0.199 -0.216 0.276 -0.061 0.082

United Kingdom -0.804 0.057 -0.146 0.114 -0.089 -0.869

North America -5.365 -0.360 0.027 -1.310 0.124 -6.883

Canada -0.572 0.043 -0.130 -0.420 0.049 -1.030

Mexico -0.124 -0.006 0.045 -0.372 0.009 -0.447

USA -4.039 -0.403 0.040 -1.221 0.216 -5.406

(c) 2005–2010

Asia and Pacific 1.348 -2.688 2.776 -0.137 0.219 1.518

China 2.886 -0.569 2.202 -0.586 0.233 4.166

Japan -2.220 0.339 0.666 0.159 0.074 -0.981

Europe -3.604 2.020 1.065 0.089 -0.130 -0.560

France -0.798 0.338 0.120 0.078 -0.063 -0.325

Germany -0.979 0.589 0.420 0.194 -0.068 0.156

Italy -0.581 0.178 -0.052 0.078 0.003 -0.375

United Kingdom -0.864 0.371 -0.035 -0.097 -0.031 -0.655

North America -1.776 0.555 0.232 -0.271 -0.046 -1.306

Canada -0.699 -0.004 0.168 -0.274 0.069 -0.739

Mexico 0.300 -0.045 0.156 -0.224 -0.048 0.139

USA -2.156 0.337 1.001 0.226 -0.114 -0.706

China’s fare share 577

123

previous section, market share effects tend to account for most of the largest

components of the share changes. For instance, in the period of 1995–2000, three of

the four countries in the table that saw the biggest overall changes in market share

were China (2.9 pp.), Germany (-2.2 pp.) and Japan (-2.4 pp.). According to the

FS decomposition, the largest component of these changes owes to market share

effects: China (3.19 pp.), Japan (-1.97 pp.), and Germany (-1.26 pp.). The US

export share also rose during this period by 1.8 pp. owing largely to the commodity

composition effect. That is, the United States gained its market share because the

structure of world imports changed towards the goods that the United States had

concentrated.

During the period of 2000–2005, the Chinese overall market share increased by

5.8 pp. and the majority of Chinese share gains were accompanied by the almost

identical overall market share loss of the United States (-5.4 pp.). Again, market

share effects accounted for almost (or more than) the entirety of these changes.

Finally, over the period of the great trade collapse (2005–2010), China’s share had

increased by 4.17 pp. and the market share and commodity adaptation effects

account for most of the overall share changes. While developed countries’ demands

for manufacturing goods had slowed due to the financial crisis, developing

countries’ demands for foreign manufacturing goods were relatively strong. China

had increased its world market share by exporting intensively to emerging

developing countries.

5 Empirical results: products and markets

We now turn our attention to an extended analysis of changes in market shares

across various regions and industries. To document further the nature of

competition between Chinese exporters and exporters from other countries, we

focus on bilateral competition in each of the markets in our sample using first

data on the aggregate of trade in the 2,001 5-digit differentiated products used to

develop Table 3.

Consider Figures 2a through 2f. In these, we compare Chinese export share

changes from 1995 to 2010 (measured on the horizontal axis) versus the export

market share changes for six possible competitor countries (measured on the vertical

axis) in the 91 remaining import markets in our sample.

Figure 2a plots market share changes from 1995 to 2010 for China and the

United States in the 91 importer markets. According to the figure the United States

lost market share in all but eighteen countries (most of these are developing

countries such as Tanzania), while China gained share in all countries. Figure 2b

plots the market share changes for China and Japan. Similar to the United States,

Japan lost market share in most countries in our sample, particularly in those in the

Asian and Pacific regions.

Figure 2c and d provides the market share changes for Malaysia and Mexico, two

of the countries that Hanson and Robertson considered as potential competitors,

each vis-à-vis China. Perhaps surprisingly, but consistent with the Hanson–

Robertson conclusions, there are no clear market losses for Malaysia and Mexico

578 S. Husted, S. Nishioka

123

relative to China during the period. Consider, for instance, the case of Malaysia.

Most of the observations in the Fig. 2c lie in the positive quadrant, suggesting that

over this period exporters from the two countries may not compete strongly in at

-15.0

-13.0

-11.0

-9.0

-7.0

-5.0

-3.0

-1.0

1.0

3.0

5.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

S ha

re c

ha ng

e of

U S

A (

19 95

-2 01

0)

Share change of China (1995-2010)

(a) Share changes between China and USA in 3rd markets

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

S ha

re c

ha ng

e of

J ap

an (

19 95

-2 01

0)

Share change of China (1995-2010)

(b) Share changes between China and Japan in 3rd markets

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

S ha

re c

ha ng

e of

M al

ay si

a (1

99 5-

20 10

)

Share change of China (1995-2010)

(c) Share changes between China and Malaysia in 3rd markets

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

S ha

re c

ha ng

e of

M ex

ic o

(1 99

5- 20

10 )

Share change of China (1995-2010)

(d) Share changes between China and Mexico in 3rd markets

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

S ha

re c

ha ng

e of

G er

m an

y (1

99 5-

20 10

)

Share change of China (1995-2010)

(e) Share changes between China and Germany in 3rd markets

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

S ha

re c

ha ng

e of

I nd

ia (

19 95

-2 01

0)

Share change of China (1995-2010)

(f) Share changes between China and India in 3rd markets

Fig. 2 Competition between China and selected countries in third markets (1995–2010)

China’s fare share 579

123

least these third country markets. 16

The data also suggest that Mexico and China do

not compete strongly in third country markets. As Fig. 2d shows, there is essentially

no correlation between market share changes in the two countries. Indeed, Mexico’s

export shares in most markets hardly changed over the period, even as China’s

shares rose across the board.

Finally in Fig. 2e and f we diagram competition between China and two other

countries, Germany and India. Consider first Fig. 2e. As the plot shows and as was

the case with the United States and Japan, most of the observations are located in the

lower quadrant of the diagram, suggesting that Germany also experienced market

share losses in the face of Chinese competition. Figure 2f provides detail on the

relationship between China and India in third markets. As the figure shows, the

relationship between Indian and Chinese market share changes over the decade from

1995 to 2010 is very similar to that between Mexico and China. Again there is little

or no evidence of close competition between the exports of these countries in third

country markets.

We turn now to focus on the major industrial sectors involved in the export

market share changes detailed above. One factor that has clearly played a significant

role in the growth of Chinese exports is the fragmentation of production across a

number of countries. In a recent paper, Koopman et al. (2008) attempt to determine

how much of the value added in Chinese exports comes from China. Using input–

output analysis, they conclude that as of 2007, Chinese value added in its exports

stood at roughly 60 %, although for relatively sophisticated electronic goods

Chinese value added was closer to 30 %.

It is impossible for us to separate the 1,832 goods in our study into inputs and

outputs. However, we can use CMS analysis on a narrower industry level to see

what differences, if any, may be due to fragmentation. Again, using data from our

ninety four country sample, Table 5 provides further detail on market share changes

for China, Japan, and the United States by region and industry. In each of these

regions for both SITC 1-digit industries 7 (machinery and transport equipment) and

8 (miscellaneous manufactures), Chinese export shares rose significantly, with gains

exceeding 10 pp. in most markets. And, as the table shows, regardless of region and

product, Chinese market share gains came at the expense of other developed

countries. In many cases, the largest losses again were experienced by Japan and the

United States.

To explore further how market shares for various exporting countries changed

within export product segments, we again present results from CMS analysis. In part

(a) of Table 6 we look at how export shares of products included in the Machinery

and Transport Equipment (SITC Category 7) for a selection of our sample countries

have changed between 1995 and 2010. This industrial sector contains electrical

goods and other products whose production increasingly involves fragmented

processing across various countries. China’s share of world exports from this sector

increased more than 16 pp. over our sample period. Three quarters of this share

growth is accounted for by the market share effect; the commodity adaptation effect

accounts for virtually all of the rest of the growth. That is, as world demand for

16 This is also consistent with the results reported in Ahearne et al. (2003).

580 S. Husted, S. Nishioka

123

imports of these goods has grown, Chinese firms have played a major role in their

assembly and export. Consistent with the results reported in Table 3, as China’s

share exports of Category 7 products has grown, export shares of Japan and the

United States have both fallen, in this case 8.2 and 6.3 pp., respectively. And,

similar again to the results of Table 3, these share losses were dominated by the

market share effect. These results suggest that a significant portion of the market

share changes for these three countries occurs in industrial sectors where processing

trade is especially important.

Part (b) of Table 6 looks at export share changes in all other industrial sectors

that produce differentiated products (i.e., the all differentiated products except those

in SITC 1-digit sector 7). As the table shows, over our sample period Chinese

market share rose in these sectors as well, and again, much of the growth can be

attributed to the market share effect. However, unlike the results in Part (a),

Japanese and U.S. market share losses were much lower.

The fact that the market share effect plays such a predominant role with Chinese

export expansion is fully consistent with the Amiti and Freund (2010) finding that

Chinese exports have grown along the intensive rather than extensive margin. The

largest component of this expansion (and the largest simultaneous loss of export

market shares in Japan and the United States) occurred in industrial sectors that now

Table 5 Changes in export shares of China, Japan, and USA for reginal markets (1995–2010)

North

America

Euro Asia and

Pacific

Others Total

I. Machinery and transport equipment (SITC 3, industry 7)

China 18.436 11.565 20.573 16.285 16.416

Japan -12.726 -4.919 -9.185 -4.044 -8.120

USA -3.485 -5.375 -8.913 -10.388 -6.345

Developing (exclude China) 4.936 6.153 2.038 7.048 4.430

Developed (exclude Japan and USA) -7.161 -7.424 -4.513 -8.901 -6.381

II. Miscellaneous manufactured articles (SITC 3, industry 8)

China 20.508 14.746 0.795 26.350 13.325

Japan -5.356 -1.296 -0.492 -2.253 -2.107

USA -3.880 -2.044 -4.974 -11.252 -3.517

Developing (exclude China) -2.779 1.606 1.010 2.000 0.321

Developed (exclude Japan and USA) -8.493 -13.012 3.661 -14.845 -8.023

III. Other industries (SITC 3, industries 0–6, and 9)

China 9.272 4.392 7.022 11.962 6.886

Japan -4.474 -0.448 -0.700 -0.750 -1.210

USA -6.992 2.019 -2.511 -4.915 -0.726

Developing (exclude China) 0.697 2.510 1.839 4.096 2.801

Developed (exclude Japan and USA) 1.498 -8.473 -5.651 -10.393 -7.750

The countries in each region correspond to Table 1

China’s fare share 581

123

T a

b le

6 E

x p

o rt

m a rk

e t

sh a re

c h a n

g e

d e c o

m p

o si

ti o

n :

1 9

9 5

– 2

0 1

0

F a g e rb

e rg

a n d

S o ll

ie d e c o m

p o si

ti o n

(5 9 7

S IT

C 5 -d

ig it

p ro

d u c ts

)

M a rk

e t

sh a re

C o

m m

o d it

y c o

m p

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ti o

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m o

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a p

ta ti

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m p

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ti o

n M

a rk

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a d

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ta ti

o n

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ta l

c h

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g e

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(a )

M a c h

in e ry

a n

d tr

a n

sp o

rt e q

u ip

m e n

t (S

IT C

3 ,

in d

u st

ry 7

)

A fr

ic a

K e n

y a

0 .0

0 1

0 .0

0 0

- 0

.0 0 2

0 .0

0 2

- 0

.0 0

1 0

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0

A si

a a n

d P

a c ifi

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in a

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- 0

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2 9

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a 0

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- 0

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0 .4

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a n

- 9

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- 1

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2 .6

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6 -

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u th

K o

re a

- 0

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- 1

.3 7 2

2 .7

9 7

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8 0

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0 1

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E u

ro p e

F ra

n c e

- 1

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0 .2

5 7

0 .2

1 7

- 0

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4 -

0 .9

1 8

G e rm

a n

y -

2 .0

8 3

0 .4

7 6

0 .3

3 9

0 .9

5 5

- 0

.4 2

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0 .7

4 2

U n

it e d

K in

g d

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- 1

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0 .6

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- 0

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N o

rt h

A m

e ri

c a

C a n

a d

a -

1 .6

4 0

0 .1

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6 0

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1 .7

3 4

M e x

ic o

1 .1

7 1

0 .2

0 5

0 .8

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- 0

.4 7

5 -

0 .4

5 7

1 .3

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A -

7 .9

9 9

0 .7

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A m

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0 .0

0 7

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582 S. Husted, S. Nishioka

123

T a

b le

6 c o

n ti

n u

e d

F a g e rb

e rg

a n d

S o ll

ie d e c o m

p o si

ti o n

(1 ,2

3 5

S IT

C 5 -d

ig it

p ro

d u c ts

)

M a rk

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sh a re

C o

m m

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y c o

m p

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ti o

n C

o m

m o

d it

y a d

a p

ta ti

o n

M a rk

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c o

m p

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ti o

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ta ti

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ta l

c h

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(b )

O th

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d if

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(S IT

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a a n

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a 0

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0 .0

2 2

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0

Ja p

a n

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1 .5

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1 .2

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1 .7

5 4

N o

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A m

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c a

C a n

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0 .6

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0 .1

6 5

M e x

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0 .2

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0 .0

8 7

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0 .1

3 1

- 0

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2 0

.4 7

2

U S

A -

3 .7

2 5

1 .3

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0 .3

3 9

0 .7

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- 0

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1 .8

7 5

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u th

A m

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c a

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- 0

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0 .0

5 1

0 .0

4 8

- 0

.0 0

1 -

0 .0

4 7

China’s fare share 583

123

involve considerable fragmentation in the production process. This suggests that

FDI and/or outsourcing provide an explanation for at least some of our results.

6 Conclusions

The growth of Chinese exports both in volume and in market share over the past two

decades is a singular event in the history of world trade. Using data from

1995–2010, we document this growth in a variety of ways. First, we show that the

expanded trade is pervasive. Virtually every country in the world has seen China

claim a larger share of its import market. Then, we use CMS analysis to try to

determine which country or countries have lost market share as China’s trade has

grown. We show that Chinese export share growth is best explained by the market

share effect. That is, Chinese exports have grown in large part as an expansion of

trade within product lines where Chinese firms had had early success. This finding is

consistent with other studies that attribute Chinese exports as growing at the

intensive margin.

Moreover, contrary to much discussion in the popular press, we find strong

evidence that other developing countries have not seen export shares fall as a result

of China’s gains. Rather, our results suggest that China’s share growth has come

largely at the expense of exporters based in Japan and the United States and

involved in processing trade.

Acknowledgments This research was begun when the first author was on sabbatical leave as a Research Fellow at the Adam Smith Research Foundation at the University of Glasgow. He thanks them for their

superb hospitality. We also thank an anonymous referee for guidance and Jim Cassing, Asatoshi

Maeshiro, and Tom Rawski for helpful comments, and the Economics Department at WVU for financial

support. The usual proviso applies.

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