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GTAP Resource #1393

"Assessing the Impact of China’s WTO Accession on Investment"
by Walmsley, Terrie, Thomas Hertel and Elena Ianchovichina

During the early 1990s, foreign direct investment (FDI) in China boomed, subsequently claiming a large share of all Foreign Direct Investment in developing countries. However, the rate of growth in FDI slowed in the later 1990’s, as investors’ high expectations failed to fully materialize. With China’s accession to the WTO at long last a reality, FDI growth has once again picked up. This paper formally explores the linkage between WTO accession and investment in China over the next two decades. The effects of a number of features of China’s accession are examined, including: the removal of tariffs and quotas, the potential for improved productivity in the automobile sector due to production rationalization, and finally, the liberalization of rules governing direct trade and foreign investment in the service sectors.
We find that investment and capital stocks increase substantially as a result of China’s accession. Moreover, accession doubles the extent of foreign ownership of Chinese assets relative to the no-accession baseline by 2020. Central to this increase in foreign ownership is the expected catch-up in the productivity of the services sectors driven by the opening up of these sectors to foreign investment. The resulting impact on GDP is also large -- 22.5% higher in 2020 as a result of WTO accession. The static welfare gains (16% by 2020) are dampened due to the fact that a substantial share of the additional investment comes from overseas. These estimates are far larger than those predicted by earlier studies, which ignored the reforms affecting the services sectors of China, and which also abstracted from capital accumulation and international capital mobility. Given its critical importance to our analysis, future research should be directed towards narrowing the uncertainty associated with the impact of accession on productivity in the services sectors.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Published
By/In: Pacific Economic Review 11(3)
Date: 2006
Created: Walmsley, T. (12/2/2003)
Updated: Ianchovichina, E. (11/28/2006)
Visits: 5,544
- Dynamic modeling
- Baseline development
- Asia (East)

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