Borrower-lender distance and the transformation and upgrading of China’s export trade

【Author】

XU Helian;JIN Yousen;WANG Haicheng

【Institution】

School of Economics & Trade, Hunan University;School of Economics & Trade, Hunan University;Institute of Industrial Economics and Technological Economics, National Development and Reform Commission;Academy of Macroeconomic Research, National Development and Reform Commission

【Abstract】

Since China’s reform and opening up, processing trade has played a decisive role in boosting China’s export miracle. However, the extensive participation in processing trade has not effectively improved the productivity of China’s export sector. So far during the 21st century, China’s export structure has shown a long-term trend of transformation and upgrading from processing trade to ordinary trade. In terms of productivity, technological sophistication, and added value, the ordinary trade sector has always shown better export performance than processing trade. Thus, the increasing share of ordinary trade in total exports reflects the transformation and upgrading of China’s export production from an expansion in volume to an efficiency enhancement. Previous studies have found that China’s disproportionate development of processing trade happened largely due to the lack of domestic funds during the early stage of reform and opening up. Recently, this situation has undergone a fundamental change, as the supply of domestic funds to the real economy has greatly increased. One of the intuitive manifestations of this change is that the geographical distance between banks and enterprises (also called “borrower-lender distance”) is greatly shortened due to the increased number of banking branches. The question arises of whether the shortening of borrower-lender distance promotes the transformation and upgrading of export trade. Research has not yet provided an answer to this question. Therefore, this paper attempted to determine whether or how the distance between banks and enterprises affects the transformation and upgrading of export trade. This analysis introduced the geographical factors of financial supply into the research framework of “new-new” trade theory. Using a database of matched Chinese banking branches, an industrial enterprise database, and a customs database, this paper empirically examined the effects of borrower-lender distance on the transformation and upgrading of export trade. The results show that the borrower-lender distance in China has had a generally downward trend from 2000 to 2010, and that this shortening of borrower-lender distance significantly promotes the transformation and upgrading of export trade, as characterized by the share of ordinary trade. Reduced financing costs and decreased default probabilities are the main channels by which the shortening of borrower-lender distance promotes the transformation and upgrading of export trade. These positive effects of shortening borrower-lender distance, however, are heterogeneous. For small and medium-sized banks, and for areas with imperfect institutional environments, backward financial systems, and underdeveloped transportation infrastructure, the shortening of borrower-lender distance tends to greatly increase the share of ordinary trade exports by local enterprises. A multi-dimensional analysis of the transformation and upgrading of export trade finds that shortening borrower-lender distance also significantly improves the quality of export products, the technological sophistication of exports, the status of local firms in the global value chain, and the capacity of these firms for innovation. This paper makes three main contributions to the literature. First, this is the first paper to examine the effects of borrower-lender distance on the transformation and upgrading of export trade. Unlike most studies on the effects of financial development on production for export, this investigation explored the role of geographical distance between enterprises and financial institutions. This paper showed how financial geography affects the roles that local enterprises play in international trade. Second, this paper provided the first overall assessment of the geographical distance between Chinese industrial enterprises and banking branches. Using the matched Chinese industrial enterprises database and data on the financial institution licenses obtained from the China Banking Regulatory Commission (CBRC) from 2000 to 2010, we determined the precise address information for Chinese industrial enterprises and banking branches. Then we directly calculated the coordinate distances between enterprises and banking branches using the open platform of AMAP. Third, this paper went beyond measuring the share of ordinary trade and constructed a comprehensive system for evaluating the transformation and upgrading of export trade. This transformation of exports is evaluated in terms of the quality, technological sophistication, level of innovation, and status of firms in the global value chain.

【Keywords】

borrower-lender distance;borrower-lender distance;ordinary trade;transformation and upgrading of export trade

References

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Total: 12 articles

  • [1] Xing Fei;Wang Shuying;He Huanlang;School of Economics,Huazhong University of Science and Technology;School of Economics and Management,Wuhan University;International Business School,Shanghai University of International Business and Economics;, From Export Expansion to the “Shift”of Foreign Trade:The Choice of Trade and R&D Policy, Economic Research Journal,
  • [2] Liu Qing;Cheng Ling;Shao Zhi;Chen Qingping;He Fei University of Technology;Shanghai University of Finance and Economics;, Credit Constraints,Export Mode and Trade Upgrading, Economic Research Journal,
  • [3] Shao Chaodui;Su Danni;, Industrial Agglomeration and the Domestic Value Added in Export:The Localization Path of GVC Upgrading, Management World,
  • [4] Robert DeYoung;;Dennis Glennon;;Peter Nigro, Borrower–lender distance, credit scoring, and loan performance: Evidence from informational-opaque small business borrowers, Journal of Financial Intermediation,

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