« Back to Results

Trade, Technology, and the Local Economy in China

Paper Session

Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM

Pennsylvania Convention Center, 102-A
Hosted By: Chinese Economists Society
  • Chair: Loren Brandt, University of Toronto

How Does Globalization Affect Educational Attainment? Evidence From China

Maggie Liu
Smith College


This paper investigates how changes in trade policy, both by China and its trading partners, affect rates of high school completion in Chinese prefectures between 1990 and 2005. I separate the effects of trade policy changes into: (1) reductions in tariffs and trade policy uncertainty abroad; and (2) reductions in Chinese tariffs on intermediate, final, and capital goods. Exploiting spatial variation across 324 Chinese prefectures and temporal variation across 15 age cohorts, I employ a difference-in-difference empirical specification and verify the results with semi-parametric methods. Robust empirical findings suggest that increases in high school completion were more pronounced in prefectures with larger reductions in Chinese tariffs on unskilled-labor-intensive inputs, Chinese tariffs on foreign capital goods, and tariffs abroad on skilled-labor-intensive goods. At the same time, increases in high school completion were attenuated in prefectures facing larger reductions in trade policy uncertainty abroad regarding unskilled-labor-intensive goods. Overall, about half of the total increase in high school completion from 1990 to 2005 can be explained by the net effect of these trade policy changes.

Trade Liberalization, Labor Market and Household Responses: Evidence From China’s WTO Accession

Mi Dai
Beijing Normal University
Wei Huang
National University of Singapore
Yifan Zhang
Chinese University of Hong Kong


Using a comprehensive household survey, we investigate the impacts of import tariff reduction after the entry into WTO on local labor market outcomes and household behaviors in urban China. Our identification strategy exploits the variation in the degree of tariff reduction across industries and the variation in the pre-WTO industry composition of local employment across Chinese prefecture level cities. Regional tariff cut lowered individual wage and household income per capita, and also lowered household consumption per capita, but to a lesser degree. More specifically, in the regions exposed to more tariff cut, people were more likely to work in non-tradable sectors, spent less in social security insurance, and lowered the saving rate. In addition, older people received less transfer income. Therefore, we conclude that household serves as a“buffer”to the negative income shock induced by trade liberalization.

Trade Liberalization and the Great Labor Reallocation

Yuan Zi
University of Oslo


The extent to which a country can benefit from trade openness crucially depends on its ease
of reallocating resources. However, we know little about the role of domestic frictions in shaping
the effects of trade policy. I address this question by analyzing the impact of tariff reductions on
the spatial allocation of labor in China, and how this impact depends on migration frictions that
stem from China’s household registration system (hukou). I first provide reduced-form evidence
that input trade liberalization has induced significant spatial labor reallocation in China, with a
stronger effect in regions with less hukou frictions. Then, I construct and estimate a quantitative
spatial model with input-output linkages and hukou frictions to examine the general equilibrium
effects of tariff reductions and perform counterfactuals. The quantitative exercise shows that trade
liberalization increases China’s welfare by 0.71%. Abolishing the hukou system leads to a direct
welfare improvement of 1.56%, but it also leads to welfare losses to hukou holders from certain
regions. Additionally, it increases gains from tariff reductions by 2% and alleviates its distributional
consequences. In this process, I develop a novel measure of migration frictions associated with the
hukou system.

Exporting out of Agriculture: The Impact of WTO Accession on Structural Transformation in China

Bilge Erten
Northeastern University
Jessica Leight
American University


The rapid expansion of manufacturing exports from China has dramatically reshaped the economies of the U.S. and Europe over the last twenty years. However, there is still relatively little evidence regarding the effect of this export expansion on structural transformation in China itself. Utilizing a newly assembled panel including approximately 2,000 counties between 1996 and 2013, this paper provides new evidence of the effect of positive shocks to the export sector generated by China's accession to the World Trade Organization (WTO) in 2001 on employment, output, and value added in agriculture, manufacturing, and services at the county level. The identification strategy exploits county-level variation in the tariff uncertainty faced by local industries prior to 2001. Following China's accession to the WTO, this uncertainty was considerably reduced when China was permanently granted normal trade relations (NTR) status in the U.S, generating a positive shock to export industries that also varied cross-sectionally. The results suggest that counties exposed to greater tariff uncertainty prior to WTO accession are characterized by shrinking agricultural sectors and expanding secondary sectors post--2001, as well as significant increases in per capita GDP. Further exploration of the relevant channels suggests that these effects are primarily driven by increases in exports and foreign direct investment.
Suqin Ge
Virginia Tech
Jessica Leight
American University
Xiaobo Zhang
International Food Policy Research Institute and Peking University
Albert Park
Hong Kong University of Science and Technology
JEL Classifications
  • O1 - Economic Development