Catching up is hard to do

Or so say Blonigen and Ma (NBER paper, access restricted) in a very interesting new paper:

Recent literature has documented the high level of sophistication of Chinese exports for a country at its general level of development. An important question is whether this is simply driven by the foreign firms in China of whether Chinese firms are also gaining greater sophistication from this foreign presence. The answer to this question has significant implications for China's long-term growth potential.

We explore the extent to which Chinese firms are gaining sophistication relative to foreign firms present in China using detailed Chinese export data that separatelyl reports exports from foreign and Chinese enterprises. The general patterns over our time period, 1997-2005 run exactly counter to what one would expect if Chinese firms were catching up - foreign firms' share of exports by product category and foreign unit values relative to Chinese unit values are increasing over time, not decreasing. We see these patterns despite the fact the FDI into China as a percent of GDP has not increased since before our sample.