Journal of African Economies Advance Access published online on March 25, 2009
Journal of African Economies, doi:10.1093/jae/ejp004
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China and the Manufacturing Terms-of-Trade of African Exporters
Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, West Lafayette, USA
* Corresponding author: Nelson B. Villoria, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, 403 W. State St., West Lafayette, Room 645, IN 47907-2056, USA. Telephone: +1 765 4948386. E-mail: nvillori{at}purdue.edu.
China's export expansion is commonly associated with lower global manufacturing prices. For most countries, lower prices heighten global competition but also allow importing a cheaper and wider set of inputs and consumer goods. This paper investigates the balance of these two forces in Kenya, Mauritius and the Southern Africa Customs Union, the largest exporters of manufactured goods in sub-Saharan Africa. The paper uses the economic geography model of Redding and Venables (in Economic geography and international inequality, Journal of International Economics, 62, 53-22, 2004) to decompose the import growth of a large number of countries into supply and demand capacities. This decomposition allows for analysis of the extent to which China's export growth has altered manufacturing import and export prices for the selected countries. The study finds that China has significantly decreased world prices in major markets for manufactures, especially textiles, wearing apparel and footwear, potentially displacing the clothing exports of the selected African countries. As a consequence of China's export growth, these focus countries have also seen substantial reductions in their import prices across all manufacturing sectors. However, an estimation of their terms-of-trade suggests that the reductions in export prices outweigh the decrease in import prices and the countries are deemed to lose from China's manufactures export expansion.
JEL classification: F12, F14, O55
The original published version of this paper had an error in the abstract which has now been corrected. The author wishes to apologise for this error