Kee, Hiau LooiTang, Heiwai2015-12-182015-12-182015-11https://hdl.handle.net/10986/23457China has defied the declining trend in domestic content in exports in many countries. This paper studies China’s rising domestic content in exports using firm- and customs transaction-level data. The approach embraces firm heterogeneity and hence reduces aggregation bias. The study finds that the substitution of domestic for imported materials by individual processing exporters caused China’s domestic content in exports to increase from 65 to 70 percent in 2000–2007. Such substitution was induced by the country’s trade and investment liberalization, which deepened its engagement in global value chains and led to a greater variety of domestic materials becoming available at lower prices.en-USCC BY 3.0 IGOTOTAL REVENUEEXPORT MARKETSSUPERVISIONSUBSTITUTIONEQUIPMENTPRODUCTIONSULPHATESTOCKMATERIALSSALESCHEMICALPERFECT COMPETITIONMARGINAL COSTINDUSTRYVALUE CHAINEXCHANGEINFORMATIONEXPORTSELASTICITYWELFAREINCENTIVESVARIABLESPRICEINPUTSINPUT PRICESTRENDSOPEN ACCESSTELEVISIONPRODUCTION PROCESSDEVELOPMENTLABOR MARKETDATAGLOBAL ECONOMYELECTRONICS INDUSTRYMANGANESEORGANIZATIONAL FORMCOMMERCECOSTSIRONDEVELOPMENT ECONOMICSEXPORT GROWTHCOMPUTERSTEXTILE INDUSTRYECONOMIC COOPERATIONEXCHANGE RATESCONSTRUCTIONCUSTOMSPRODUCTSVALUE CHAINSBASE YEARPRODUCTIVITYWATERECONOMETRIC MODELSINDUSTRIALIZATIONGLOBALIZATIONCRITERIABUYERSMARKETSNET EXPORTSWTOFOREIGN INPUTSRESEARCHMATERIALPRICE ELASTICITYPRODUCTELASTICITY OF SUBSTITUTIONGROSS DOMESTIC PRODUCTFOREIGN INPUTINVENTORYSUBSTITUTESTRANSACTIONSMANUFACTURINGUNEMPLOYMENTEMERGING MARKETSTRANSACTIONVALUE ADDEDSUBSTITUTECAPITALWAGESVERTICAL INTEGRATIONINTERNATIONAL TRADECOMMERCIAL VALUERESULTSVALUECOMPETITIVENESSFOREIGN DIRECT INVESTMENTPRODUCTION FUNCTIONSCREDITFORMAL ANALYSISMACROECONOMICSRAW DATADEMANDGLOBAL SUPPLY CHAINSGLOBAL SUPPLY CHAINAVERAGE PRICEBALANCE SHEETMARKETBENCHMARKTRADE LIBERALIZATIONSUPPLY CHAINTOTAL SALESPRODUCTION FUNCTIONREGRESSION ANALYSISRESULTGOVERNMENT POLICIESEXPORT SECTORTRADEGOODSTHEORYSUPPLY CHAINSGROWTH RATECOMPARATIVE ADVANTAGEGROWTH STRATEGYPERFORMANCESUPPLYIMPUTATIONREVENUEMONOPOLISTIC COMPETITIONWORLD TRADECOMMODITIESSUPPLIERSDATABASEPRICE INDEXOUTSOURCINGPRICESINVENTORY MANAGEMENTPRODUCTION COSTSPRODUCTION PROCESSESDEVELOPMENT POLICYFUTURE RESEARCHWorking PaperWorld Bank10.1596/1813-9450-7491