In the first part of our paper we will present the theoretical background of the international trade. We will begin with the description of the evolution of the comparative advantage theories, and then continue with the competitive advantage theory. On this point it is important to mention that the authors of the paper which was the basis for our paper are the opinion that the "Chinese Miracle" can be best explained with the term competitiveness (coming from the competitive advantage theory), so in their paper they only briefly mentioned the comparative advantage
theories and discuss the competitiveness more thoroughly. However, the analysis of the international trade begun with comparative advantage theories (Smith's theory of absolute advantage) and there are still many economists claiming that the
development of the East Asia can be explained sufficiently enough by them. Therefore, we found it sensible to include them in our paper. We will continue with the discussion of some important factors, responsible for China's competitiveness. We will briefly stop at Balassa's comparative advantages, which are an ex-post measure, to show where China has comparative advantages. Continuing with exchange rate we'll try to argue weather it's currency is undervalued, what are the main reasons for such a belief and provide the opposite side
arguing why it is not so. In pursuit of the answer we'll use different theoretical background, mainly purchasing power parity and unit value ratios. Next important factor of China's competitiveness are the labour costs, which are determined largely by the wages. After that, we will talk about Foreign Direct Investment (FDI) in China which is also used as a measure of China`s competitiveness. We will show that FDI into China has dramatically risen during recent years- a sign of growing competitiveness for our authors. But we will also assess this statement critically before we conclude.
[...] Table Labour required to produce cloth and wheat in the USA compared to the rest of the world Labour required to make↓ 1 bushel of wheat 1 yard of cloth USA 2.0 hours 4.0 hours Rest of the world 1.5 hours 1.0 hours Source: Pugel and Lindert, 2000; p.38 The table shows that the USA need more labour than the rest of the world to produce both of its goods, but there is a difference in the opportunity costs. If there is no international trade and if the USA want to produce an additional bushel of wheat, they have to give up 0.5 yard of cloth while the rest of the world has to give up yard of cloth if it wants to produce 1 bushel of wheat more. [...]
[...] Therefore, the governments' role is to reinforce determinants and not to create competitive advantage MEASURING THE COMPETITIVENESS AND THE CRITICISM OF THE THEORY As Porter's competitive advantage theory is quite clear, the measurements to compare international competitiveness are plentiful and different from the author to author and the organisation to organisation. This is the reason for one of the critiques of the competitiveness approach, because such large amount of potential factors (variables) weakens any predicting power of the model (0'Toole).Nevertheless, the broadly used approach to measure the international competitiveness is the one used in the World Competitiveness Yearbook published by IMD (Svetina p.5) where the competitiveness is measured according to country's performance in domestic economy, government, financial system, science and technology, inhabitants and the infrastructure. [...]
[...] Because of that paradox, the economists (also Leontief himself) started thinking of the different types of labour, different types of natural resources and so forth Some economists have developed their detailed explanations of the trade patterns based on the comparative advantage theory, while the others, such as Porter, developed their own theories (in Porter's case competitiveness or competitive advantage theory) to explain the international trade patterns. Both of the approaches, further developed comparative advantage approach and the competitiveness approach, will be presented in the following text. [...]
[...] We showed that most of Chinese exports are in fact re-exports from other Asian countries and the revaluation of the Yuan is somehow a political pressure from the US congress, blaming China for a loss of American jobs LABOUR COSTS Labour costs are an important determinant of Chinese competitiveness. The fact is that a quantity of Chinese labour force is enormous and is going to be keeping the manufacturing prices down for some more time. From the labour costs point of view, China definitely has comparative advantage in labour supply (started with unskilled, but the more the country is developing, the more skilled labour force it has). [...]
[...] However, there is also a quality problem because quality differences are most important in consumer durables and investment goods but less so for basic goods which represent intermediate stages of production. This latter group makes up a large share of manufacturing output but is by definition excluded from final expenditure comparisons (Bart van Ark, 1993). Secondly, compared to specification prices, unit values relate to a relatively large share of output and they cover the production of a whole year. In particular for comparisons between countries with a different structure in manufacturing, it is questionable how representative specification prices are of the total output in the countries. [...]
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