Productivity, Profitability, Production and Export Structures along the Value Chain in China

This paper incorporates Chinese input-output table, firm-level manufacturing data and transaction-level customs data into a unified value chain framework, which allows us to study the value chain position for all industries, regions, and firms in China. Using a simple theoretical model and assuming that the fixed investments in more upstream industries are higher, we show that firms in more upstream industries are more capital intensive, productive and profitable. We then apply this framework to analyze firms’ production and export performances along the value chain and document the following patterns: 1) Both the start-up capital investments and the annual investment expenses are higher for upstream firms, which makes the upstream firms more capital intensive. 2) Both the productivity and the profitability are higher for these upstream firms. 3) Counter-intuitively, the underdeveloped provinces, which are often thought to be more labor-abundant, are in fact concentrated in  the capital-intensive upstream industries.  We suggest that  the “Third Front Construction” policy implemented between 1964 and 1980 in China could play some role be a reason for these counter-intuitive findings. 4) Both the production and export upstreamness have increased after the accession of WTO.