Influence of International Trade on the Urbanization in the Pearl River Delta

Business School, Lingnan Normal University, Zhanjiang 524048, China

Abstract The Pearl River Delta is a typical representative of China’s coastal economic belt and one of the most active regions for international trade. It has important reference value for the urbanization of other coastal economic regions in China to study the impact of international trade on the urbanization of the Pearl River Delta. This paper constructs the theoretical model of the three factors of export trade, import trade and industrial scale affecting the urbanization of the Pearl River Delta. It is empirically found that the international trade has positive effects on the total effect of urbanization in which export trade and import intermediate product trade have a positive effect on urbanization, and import trade and export intermediate product trade have a negative effect on urbanization.

Key words Export trade, Import trade, Urbanization, Panel model, Pearl River Delta

1 Introduction

With the rapid development of the economy and society, the population is continuously transferred from agriculture to industry or service industry. Urbanization is the inevitable development process of a country or region. TheNationalNew-typeUrbanizationPlan(2014-2020) puts forward new requirements for taking a new urbanization path with Chinese characteristics and comprehensively improving the quality of urbanization. Urbanization is an important indicator of the economic development of a country or region, and it is also the process of civilization formation. Since China’s reform and opening up, the economy has developed from a rapid development to a stable one, and the urbanization has continued to develop with the development of the economy. China’s coastal economic belt is the earliest open area, and the urbanization development has achieved excellent results. Guangdong province is a strong economic province and a strong trade province. The Pearl River Delta urban agglomeration is the frontier of reform and opening up in Guangdong Province. The economic development level and urbanization level of import and export trade have achieved good results. In 2017, the average urbanization rate of the Pearl River Delta population exceeded 85%. The urbanization level of the Pearl River Delta is in the forefront of China. Its urbanization process and the impact of international trade on urbanization have theoretical and practical reference values. Based on the research results of many scholars and on the process of import and export trade and urbanization, this paper uses the population urbanization of the Pearl River Delta to measure the urbanization development level, and the industrial development level as the control and intermediate variables. From the perspective of import and export trade, it analyzes the impact on the urbanization process and draws relevant conclusions and recommendations.

2 Related literature review

International trade can promote a country’s economic growth and affect industrial development, which will have a major impact on urbanization. Relevant literature can be summarized from both sides which are the expansion of international trade volume and the change of international trade structure.

2.1 Impact of international trade expansion on urbanization

The factor endowments of countries form the comparative advantage or the absolute advantage in international trade. Each country focuses on the production of superior products and exchange products at a disadvantage, which leads to international division of labor, and greatly raises labor productivity and increases national wealth. The specialized division of labor has played a significant positive role in promoting the economic growth efficiency of the city[1]. By international trade, China can realize the sharing of resources with the world, and can also realize the internationalization of the domestic market. International trade not only expands the resources and market boundaries of China’s urbanization, but also provides non-agricultural extra-territorial demand for the rapid development of urbanization[2]. Based on the international trade and dual economic model, an econometric model is built in which the empirical evidence shows that China’s import trade and export trade both significantly promote the level of population urbanization[3]. Under the conditions of economic globalization, international trade has promoted the rapid development of China’s urbanization. After the analysis of 131 national data from 1989 to 2011, it is concluded that the degree of openness increased by 1% and the urbanization rate increased by about 0.2%[4]. Taking Zhejiang Province as an example, it illustrates the different types of industrial agglomeration and the spatial characteristics of urban expansion. It is concluded that industrial agglomeration is the basis of urbanization, and the evolution of urbanization and the type of expansion largely depend on industrial agglomeration[5]. Specialized division of labor promotes industrial agglomeration and economic development, while industrial agglomeration and economic development promote urbanization.

2.2 Impact of trade structure changes on urbanizationThe trade structure is closely related to the industrial structure. The optimization of industrial structure is an important driving force for promoting urbanization. It can promote the upgrading of industrial structure to optimize the structure of import and export commodities, to increase the proportion of technical content and high value-added industrial manufactured goods in exports, and to expand the export of mechanical and electrical products and high-tech products[6]. There is an interaction between the adjustment and upgrading of industrial structure and urbanization. The orderly evolution of industrial structure promotes the transformation of urbanization dynamic mechanism. The urbanization has a supporting and promoting role for the evolution and upgrading of regional industrial structure[7]. By analysis of commodity trade as grain trade and non-cereal trade, it is concluded that grain trade increased by 1%, urbanization increased by about 0.4%, while non-cereal trade increased by 1%, and urbanization rate decreased by about 0.03%[8].

It can be drawn from the literature review that the impact of international trade on urbanization has both promoting and inhibiting effects. Different trade commodity structures show different roles, while trade structure and trade volume are constantly changing dynamically. Therefore, it is necessary to analyze the impact of international trade on urbanization according to the specific trade environment and development process of the city, in order to more accurately obtain the role of promotion or inhibition.

3 Theoretical analysis and model construction

From the perspective of economics, urbanization can be considered as the process of transferring labor from agriculture to non-agricultural industries and from rural to urban areas. Industrialization is the main driving force for rural labor. Urbanization was initially driven by industrialization[9]. Since the reform and opening up, the driving mechanism of China’s urbanization development is mainly the promotion of rural industrialization, the driving of comparative interests, the contribution of agricultural surplus and the promotion of institutional changes[10]. Industrialization is the internal fundamental driving force for China’s urbanization development. From the perspective of population transfer, urbanization can be measured by the proportion of urban population to total population (both agricultural and non-agricultural).

The economy of Pearl River Delta is typically driven by the development of the manufacturing industry, and its urbanization process is the process of industrial development. In the process of industrialization of the Pearl River Delta, more and more rural laborers have joined the import and export trade industry in pursuit of higher income. The import and export trade industry has generally concentrated in cities, leading to the shift of agricultural population to non-agricultural industries. In the industrial transformation and upgrading, the traditional model based on the primary industry has shifted to the mode of secondary industry and coordinated development of secondary and tertiary industries. The development of non-agricultural industries has greatly promoted the pace of urbanization in the Pearl River Delta. Therefore, import and export trade has a significant role in promoting urbanization.

The service industry is also an important factor in promoting urbanization, but the service industry in the Pearl River Delta is currently subordinate to industry, and has not yet formed a pattern in which services lead industrial development.

Import and export trade is a tangible commodity that does not directly affect urbanization. It promotes industrialization by affecting industrial development and ultimately affects urbanization. According to the historical process of economic development in the Pearl River Delta region, the mechanism of international trade impact on urbanization can be summarized as Fig.1.

Fig.1 The mechanism of international trade impact on urbanization

In summary, it is possible to establish a theoretical model of urbanization that is affected by the three factors of export trade, import trade and industrial scale. Export trade and import trade must be combined with industry, that is, interaction term. Many econometric experts believe that a model, with an interaction term, must contain individual items in order to better analyze its role. The theoretical model is constructed as in equation (1).

UR=C+β1EX+β2IM+β3IO+β4(EX×IO)+β5(IM×IO)

(1)

whereURdenotes the level of urbanization,Cdenotes the constant term,EXdenotes the export trade,IMdenotes the import trade,IOdenotes the industrial added value, andEX×IOdenotes interaction term between the export trade and industrial value added,IM×IOdenotes interaction term between the import trade and industrial value added, andβ1,β2,β4andβ5denote the coefficient of each explanatory variable, which represent the influence on the urbanization process of the Pearl River Delta.

The impact of export trade on urbanization is reflected byEXandEX×IO. Since exports are conducive to GDP growth and industrial development, the total effect should be positive. The impact of import trade on urbanization is reflected byIMandIM×IO. Since imports are not conducive to GDP growth and could inhibit industrial development, the total effect should be negative.

Because there are many influencing factors on urbanization, the omission of some factors may lead to endogenous problems of the measurement model. In the study of urbanization econometric models, the panel fixed-effect model of individual effects can solve some endogenous problems caused by missing variables[11]. Therefore, this paper selects the panel fixed-effect measurement model, as shown in equation (2).

URit=C+β1EXit+β2IMit+β3IOit+β4(EXit×IOit)+β5(IMit×IOit)+μit

(2)

whereμitdenotes a random error term,irepresents Shenzhen, Guangzhou, Zhuhai, Foshan, Huizhou, Jiangmen, Dongguan, Zhongshan and Zhaoqing, respectively; andtis the time variable from 2007 to 2017. Other variables have the same meaning as equation (1).

4 Analysis of empirical results

4.1 Data source and descriptionThe proportion of urban population and total population in the cities of the Pearl River Delta (%), the export amount (100 million USD), import amount (100 million USD), industrial added value (100 million yuan) and historical exchange rate of each city are derived from the statistical yearbooks of Guangdong Province over the years. The GDP Deflator Index is derived from theChinaStatisticalYearbook.

In order to ensure the accuracy and comparability of the data, the export amount and the import amount are converted into RMB at the exchange rate of the current year. In order to eliminate the impact of inflation on the price, the GDP Deflator Index is used to correct the export amount, import amount and industrial added value.

4.2 Empirical processThe corrected data are compiled using the equation (2) and the results of the STATA software are summarized in Table 1.

It can be seen from Table 1 that the impact of import trade (IM) on urbanization is composed of two parts,i.e., theIMcoefficient is negative, but the interaction itemIM×IOis positive. Similarly, the impact of export trade (EX) on urbanization consists of two parts,i.e., theEXcoefficient is positive, but the interaction termEX×IOis negative. The combined effects of import and export trade on urbanization cannot be directly added by the previous coefficients, because the dimensions of these explanatory variables are different. After industry added value (IO) is fixed at the average value, the marginal effect coefficient of each explanatory variable is obtained as shown in Table 2.

The coefficients in Table 2 are comparable due to dimensionless, so the combined effect of import trade (IM) on urbanization is -0.006 1 (-0.006 3 plus 0.000 2), which is in line with theoretical expectations; the combined impact of export trade (EX) on urbanization is 0.006 6 (0.006 8 plus -0.000 2), which meets theoretical expectations. Moreover, the total effect of import and export trade on urbanization is 0.000 5 (-0.006 1 plus 0.006 6), which is positive, that is, international trade promotes the urbanization process of the Pearl River Delta.

The symbol of the interaction term coefficient is further analyzed from the perspective of trade commodity structure. Traded goods can be divided into final products and intermediate products (including raw materials). For exports, the export of intermediate products means that the production chain of final products is moved abroad, weakening the role of promoting urbanization, and showing a certain negative effect compared with the final products. The import of intermediate products shows a positive effect, which is similar to the final products of export. Due to the extremely complex workload of intermediate products, only Table 3 lists the proportion of raw materials in import and export trade of Dongguan City over the years. The similarities exist in other Pearl River Delta cities, indicating that it is different for the impact of intermediate product trade and final product trade on urbanization.

Table 1 Fixed-effect model estimation results

ExplanatoryvariableCoefficientStandarddeviationT valueP valueIM-0.006 30.003 3-1.900 00.060 0EX0.006 80.002 23.030 00.003 0IO0.005 30.001 73.040 00.003 0IM×IO0.000 20.000 11.780 00.082 0EX×IO-0.000 20.000 1-1.960 00.054 0C0.696 40.027 825.030 00.000 1

Note: ModelFvalue (219.630 0), ModelPvalue (0.000 1).

Table 2 Marginal effect coefficients of explanatory variables

Explanatory variableMarginal effect coefficientIM-0.006 3EX0.006 8IO0.005 3IM×IO0.000 2EX×IO-0.000 2

Table 3 The proportion of raw materials in the import and export trade of Dongguan city %

5 Conclusions and further research questions

5.1 Main conclusionsThe total effect of export trade on the urbanization of the Pearl River Delta is to promote, but exports of intermediate products have a certain negative effect. The total effect of import trade on urbanization is inhibition, but imports of intermediate products have a positive effect. Overall, international trade has a positive effect on the urbanization of the Pearl River Delta.

In order to improve the level and quality of urbanization, urban agglomeration in the Pearl River Delta should vigorously develop export trade, further expand opening up, promote the development of export trade, increase the scale of exports, and enhance the power of urbanization. For export, the Pearl River Delta also improves urbanization quality by constructing a high-quality export trade structure, reducing the export of industrial intermediate products and raw materials, promoting the rational allocation of labor, capital, technology and resources, improving the aggregation effect of factors, optimizing processing trade, and promoting industrial transformation and upgrading. For import, it is good way for quality urbanization to import scarce industrial raw materials, industrial intermediates and advanced foreign technology and equipment in the Pearl River Delta market, to expand the industrial ratio, to promote economic development, and to accelerate the transition from labor-intensive and capital-intensive technologies to technology-intensive ones.

5.2 Further research questionsThis paper preliminarily interprets the symbolic meaning of the interaction term with intermediate products, which may require a more detailed classification of the trade commodity structure to analyze the impact of trade structure on urbanization from a quantitative perspective.

Urban agglomeration in the Pearl River Delta has entered the stage of innovation and development, showing that intellectual property services trade leads the economic development, thus affecting the quality and type of urbanization. The single indicator of population urbanization cannot reflect the quality of urbanization enough. Service industry should be added to the dynamic mechanism of urbanization.