Foreign direct investment, processing trade, and the sophistication of China's exports

China's export structure has shown a rapid shift towards more sophisticated industries. some believe that this trend is a result of processing trade and foreign direct investment, evidence is mixed. This paper examines variations in level of export sophistication China's manufacturing industries. We find that an industry's level of export sophistication positively related to the share of wholly foreign owned enterprises from OECD countries the share of processing exports of foreign-invested enterprises, and negatively related to share of processing exports of indigenous Chinese enterprises. Evidence from the export prices of Chinese goods, which measure within-product export sophistication, shows similar pattern. (C) 2009 Elsevier Inc. All rights reserved.