Domestic Content Of Exports On Domestic Inputs For Production Over The Past Decades

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Globalisation has allowed firms to rely less on domestic inputs for production over the past decades. Research finds that domestic content of exports has been declining over the decades (Johnson & Noguera 2014). China is an intriguing exception to defy this global trend despite its involvement as the factory of the world. According to Global Insight, China has emerged as the world’s largest manufacturing producer in terms of value added in 2010 (Marsh 2011). The country will have truly transited to the largest workshop of the world if the previous statement is true. However there are strong empirical evidences to counter the claim. Although in recent years China has focused on upgrading its position in the global value chains, it may not…show more content…
Consumption refers to the aggregated value of goods and services bought by people in the country. It takes up 68% of the GDP especially for developed countries like the U.S as of 2014 (World Bank 2014). Its components covers consumer staples goods that are considered to be non-cyclical and energy products. Investment on the other hand includes the investment activities of private businesses such as acquisition and construction of new mine and factories. For the purpose of the discussion, the paragraph will focus on comparing U.S and China’s consumption because consumption is normally the largest GDP component in an economy. A good way to show whether China has really transited from a world factory to a workshop is through comparing U.S and China’s consumption and investment. U.S has long imported more than exported its goods by having a trade deficit of USD 367,172 million with China (United States Census Bureau 2015), which has increased by 36.8% since 2008. This shows that U.S companies initiated to outsource and offshore the manufacturing of labor intensive products to create the global production networks’ that promoted Foreign Direct Investment (FDI) and facilitated export flows from Asia. Through the outsourcing and offshoring activities, the U.S companies have created a headquarter economy where they focus on purely optimizing the supply chain and enhancing brand management. Thus it creases
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