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Winners and losers from China’s ascension in international trade: a structural approach

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  • Costa, Francisco Junqueira Moreira da
  • Pessoa, João Paulo

Abstract

This paper employs a unified theoretical framework to estimate the effect ofchanges within China on the Brazilian and World’s economy. Based on the Ricar-dian model of trade of Costinotet al.(2012), we perform counterfactuals exercises toanalyze how industries in Brazil would have performed in the absence of the Chineseascension. We discuss two main counterfactual exercises. First, we model produc-tivity growth in China as the main lever by which Chinese supply and demandconditions evolve and affect economies worldwide. Second, we study how changesin composition of Chinese demand (taste) affects trade flows around the world. Thetwo counterfactual exercises together suggest that changes in China’s comparativeadvantage hampered manufacturing sectors abroad, in particular labor-intensiveBrazilian manufacture producers. We find no support for the idea of a China tasteshock driving demand towards raw materials. Our model suggests that if Chinatriggered a commodity boom in the world, or at least in Brazil, this was drivenmostly by increased income in China. And any changes in China’s tastes over prod-ucts contributed to moderate such boom. Specifically, our model indicates that theboom of soybeans cultivation in Brazil is due to changes in Brazilian comparativeadvantage paired with a level increase in demand for this product within China.

Suggested Citation

  • Costa, Francisco Junqueira Moreira da & Pessoa, João Paulo, 2019. "Winners and losers from China’s ascension in international trade: a structural approach," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 809, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:809
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    References listed on IDEAS

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    1. Costa, Francisco & Garred, Jason & Pessoa, João Paulo, 2016. "Winners and losers from a commodities-for-manufactures trade boom," Journal of International Economics, Elsevier, vol. 102(C), pages 50-69.
    2. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
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    4. Lorenzo CALIENDO & Maximiliano DVORKIN & Fernando PARRO, 2016. "Trade and Labor Market Dynamics," Discussion papers 16050, Research Institute of Economy, Trade and Industry (RIETI).
    5. Paula Bustos & Bruno Caprettini & Jacopo Ponticelli, 2016. "Agricultural Productivity and Structural Transformation: Evidence from Brazil," American Economic Review, American Economic Association, vol. 106(6), pages 1320-1365, June.
    6. Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
    7. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2019. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Econometrica, Econometric Society, vol. 87(3), pages 741-835, May.
    8. Julian di Giovanni & Andrei A. Levchenko & Jing Zhang, 2014. "The Global Welfare Impact of China: Trade Integration and Technological Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(3), pages 153-183, July.
    9. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 581-608.
    10. Gallagher, Kevin P. & Moreno-Brid, Juan Carlos & Porzecanski, Roberto, 2008. "The Dynamism of Mexican Exports: Lost in (Chinese) Translation?," World Development, Elsevier, vol. 36(8), pages 1365-1380, August.
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