Using a Melitz-type theoretical model of firm heterogeneity, we show that (i) the presence of foreign firms within an industry affects the industry export quality and (ii) the industry export quality is directly related to the industry export price. As the industry export price can be approximated by the industry export unit value, our work provides a rigorous theoretical justification for several empirical studies that use export unit value as a proxy for export quality. We then convert our theoretical model-based structural relationships into a system of equations. Using industry level panel data from China's manufacturing sector, and measuring the industry export quality by the industry export unit value, we find that an increase in foreign presence in China's manufacturing sector contributes to a significant increase in China's export quality. We also distinguish between foreign presence in China originating from the Hong Kong, Macao and Taiwan (HMT) and non-HMT regions. We find that foreign presence in China's manufacturing sector that originates from the HMT region leads to a much larger increase in China's export quality. The main empirical result is found to be robust with respect to alternative measures of foreign presence and aggregate demand

Purpose: The infrastructure investment is one important source of economic growth in China in the past three decades. However it is not clear to what extent such investment affects development in rural area. The purpose of this paper is to explore this impact both conceptually and quantitatively, and draw policy implications from the empirical exercise. Design/methodology/approach: The authors first describe the conceptual link between the transportation infrastructure and rural development, which motivates the empirical model. Then by utilizing an autoregressive distributed lag model, the authors estimate both the short- and long-run impacts of the transportation infrastructure on rural development, in terms of cereal yield and per capita net income of rural households. Findings: The authors find that investment in transportation infrastructure positively affects rural development in China. In terms of cereal yield, a 1 percent increase in the road infrastructure (road length) leads to around 0.05 percent increase in cereal yield in the short-, and around 0.19 percent increase in the long-run. In terms of the per capita net income of rural households, a 1 percent increase in the road infrastructure results in around 0.14 percent increase in the short-, and its long-run impact is not statistically significant. The positive impacts lend supports to promote investment in the transportation infrastructure. To this end, in addition to the government funding, the participation of private capital can also be promoted through a number of channels, such as the build-operate-transfer, public-private partnership, and establishment of infrastructure investment bank. Originality/value: This study evaluates the impacts of transportation infrastructure on rural development in China. Despite of the importance of infrastructure and rural development, there is a lack of study on the interaction between them. This paper intends to fill in this gap. In addition, implications drawn in this exercise can benefit policy makers not only in China, but also in other developing countries.