Why the manufacturing firms in developing countries can be competitive? The evidence of China

Abstract

Based on the data of more than 95,000 Chinese manufacturing firms, this study explores the reasons for the recent surge of manufacturing exports from China. Contrary to common belief, neither unit labor cost nor Research and Development (R&D) investment has been a contributing factor to the export success of Chinese firms, even in hightechnology sectors. Although exportation of high-technology products has traditionally been dominated by foreign manufacturing firms, domestic firms have invested more heavily in R&D than their foreign counterparts. However, the major contributors to the increase in Chinese exports are product innovation, collaboration with foreign investors, and fierce domestic competition.