Development in China and Africa

My dissertation studies the development of China and Africa over the past two decades. First, China has maintained a high rate of economic growth in the past twenty years. At the same time, we observe a rapid growth in the African export flows to China, even faster than those to the US and EU. We argue that the remarkable export expansion cannot be solely explained by China’s rapid growing economy relative to the US and EU. By comparing the predicted trade pattern based on gravity model with the actual trade flows, we confirm the limited role of economic growth in explaining the rise in Africa-China trade flows, which is referred as the “Africa-China trade puzzle”. In an attempt to explain the puzzle, we highlight the importance of China’s preferential trade policies in promoting Africa-China trade flows. Second, we are concerned with not only the volume of African trade but also the structure, as industrial upgrading structural change in exports is crucial for sustainable growth. Therefore we empirically examine patterns of African exports and its evolution over the last two decades. We measure the degree of export specialization of individual African countries by utilizing the index of revealed comparative advantage, and then, on the basis of the entire distribution of revealed comparative advantages, we employ two indices to identify the evolution of African trade patterns. We find that African exports remained highly specialized in exporting primary goods and there is no evidence of export structural breaks over time. In the end, we analyze the potential obstacles such as resource curse, the absent skilled labor force, certain geographic and institutional factors that may prevent African countries from moving to manufacture-based exports. Third, we turn to the evolution of China’s agglomeration of economic activities. The literature on China indicates that the concentration of economic activities in China is less than in other industrialized countries. Institutional limits to internal migration are largely held responsible for this finding (the Hukou system); firms and workers are not able to maximize the benefits from agglomeration economies. China is changing rapidly, however, also in this respect. We show that, by using the methodology developed by Davis and Dingel (2013), high-skilled workers in high-skill intensive sectors sort into larger locations. We demonstrate this for regions, agglomerations, cities, and for skills, occupations, and sectors. The results are strongest for cities and skills, followed by agglomerations and occupations, respectively. Between 2000 and 2010 this sorting process has become stronger, which we interpret as an indication that institutional limitations in China against further agglomeration weaken, and that the consensus in the literature that ‘Chinese cities are too small’ needs some qualification.