Trade with China and Skill Upgrading: Evidence from Belgian Firm Level Data

We use Belgian rm-level data over the period 1996-2007 to analyze the impact of im- ports from China and other low-wage countries on rm growth, exit, and skill upgrading in manufacturing. For this purpose we use both industry-level and rm-level imports by country of origin and distinguish between rm-level outsourcing of nal versus intermediate goods. Results indicate that, both industry-level import competition and rm-level outsourcing to China reduce rm employment growth and induce skill upgrading. In contrast, industry-level imports have no e ect on Belgian rm survival, while rm-level outsourcing of nished goods to China even increased rm's probability of survival. In terms of skill upgrading, the e ect of Chinese imports is large. Industry import competition from China accounts for 42% of the within rm increase in the share of skilled workers in Belgian manufacturing over the period of our analysis, but this e ect, as well as the employment reducing e ect, remains mainly in low- tech industries. Firm-level outsourcing to China further accounts for a small but signi cant increase in the share of non-production workers. This change in employment structure is in line with predictions of o shoring models and Schott's (2008) 'moving up the quality ladder' story. All these results are robust to IV estimation.