Endnotes

¹Naughton (2007) emphasizes the dual nature of the PRC's transition and its implications.

²Dean, Fung, and Wang (2008) emphasize the PRC's unique trade profile. They report that the current-dollar value of the PRC's exports plus imports rose from US$280.9 billion in 1995 to US$1,760.4 billion in 2006, a growth of about 537%.

³Recent contributions to the literature are reviewed by Helpman (2006) and Antràs and Rossi-Hansberg (2008).

⁴References to the EU refer specifically to the EU15, comprised of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

⁵The US International Trade Commission's PRC dataset allowed us to observe re-exports through Hong Kong, China and to identify and attribute them to their final destinations. However, the size of the share of exports with Hong Kong, China as their final destination suggests that some exports destined for other markets may still be included in these figures.

⁶Hammer (2006) provides greater detail on PRC customs classifications. Processing imports are generally exempt from customs tariffs.

⁷Annual data regarding FDI from the US and Japan is available from the PRC Ministry of Commerce (http://www.fdi.gov.cn/pub/FDI_EN/Statistics/AnnualStatisticsData/default.jsp [accessed 6 June 2009]).

⁸All data in this paragraph, with the exception of PRC education data, are from the World Bank's 2007 World Development Indicators and values are expressed in constant 2000 US dollars. The PRC tertiary education data are from the PRC's Yearbook of Labour Statistics for 2006.

⁹In the IIT literature, “vertical” IIT refers to differences in product quality, not to differences in stages of production (Greenaway, Hine, and Milner 1995). The SITC classifies products such that only a small number of five-digit lines include products at different stages of production.

¹⁰Dean, Fung, and Wang (2008) focus on trade in 2002 because that year matches the most recent benchmark input-output tables, which they use extensively in their analysis of the vertical specialization of the PRC's trade.

¹¹The data for this paragraph and the next two are from Dean, Fung, and Wang (2008). We thank them for giving us access to these data.

¹²Using a concordance between SITC (Rev. 2) and HS codes, these shares were then averaged using trade volumes as weights.

¹³They assumed that ownership and control are chosen to maximize joint surplus plus an identical and independently distributed extreme value random error that varies across contractual types.

¹⁴Part of this dominance of foreign ownership and foreign control over inputs may be explained by the post-1996 easing of FDI restrictions in the PRC, which led to a surge in the establishment of wholly-owned foreign subsidiaries (i.e., FFEs).

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