International Production Networks and Export Performance in Developing Countries: Evidence from China

Developing countries may expand their exports through participating in international production networks organized by multinational corporations. China appears to have been successful with this approach in the past two decades. Its exports rose from $9.8 billion in 1978 (ranked as thirty-second in the world) to $762 billion in 2005 (the third-largest in the world). In the same period, accumulated foreign direct investment (FDI) flows into China increased from zero to $602 billion, and exports by foreign-invested enterprises in 2005 comprised 57 percent of China's total exports. FDI promotes China's exports mainly through labor-intensive processes and component specialization within vertically integrated international industries. However, the challenge facing China is how to increase domestic value added and how to upgrade its industry in international production networks.