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Globalization, Trade & Wages: What Does History tell us about China?

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  • Kris James Mitchener
  • Se Yan
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Abstract

Chinese imports and exports grew rapidly during the first three decades of the twentieth century as China opened up to global trade. Using a new data set on the factor-intensity of traded goods at the industry level, we show that Chinese exports became more unskilled-intensive and imports became more skill-intensive during these three decades. The exogenous shock of World War I dramatically raised the price of Chinese exports and increased the demand for these goods overseas and for unskilled workers producing these goods in China. When the war ended, trade costs declined, leading to a rise in China’s terms of trade and further growth in China’s export sector. Difference-in-differences regression estimates show that World War I boosted exports in China and did so substantially more for unskilled industries than skilled industries. We show that the observed decline in the skill premium in China is consistent with China’s changing terms of trade. The skill-unskilled wage ratio flattened out during the 1910s and then fell by eight percent during the 1920s. We simulate the effects of World War I using a dynamic, general equilibrium factor-endowments model of trade, and demonstrate that an exogenous shock to the price of traded goods can produce a decline in the skill premium similar to what China experienced in the 1920s.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15679.

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Date of creation: Jan 2010
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Handle: RePEc:nbr:nberwo:15679

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Citations

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Cited by:
  1. Michael Funke & Hao Yu, 2011. "The emergence and spatial distribution of Chinese seaport cities," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 21101, Hamburg University, Department of Economics.
  2. Chaudhary, Latika & Musacchio, Aldo & Nafziger, Steven & Yan, Se, 2012. "Big BRICs, weak foundations: The beginning of public elementary education in Brazil, Russia, India, and China," Explorations in Economic History, Elsevier, Elsevier, vol. 49(2), pages 221-240.
  3. Anwar, Sajid & Sun, Sizhong, 2012. "Trade liberalisation, market competition and wage inequality in China's manufacturing sector," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1268-1277.
  4. Kevin H. O’Rourke & Ahmed S. Rahman & Alan M. Taylor, 2012. "Trade, Technology and the Great Divergence," Departmental Working Papers, United States Naval Academy Department of Economics 35, United States Naval Academy Department of Economics.

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