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Trade liberalization, wages, and specialization in China

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  • Hong, Chang

Abstract

This paper studies the evolution of regional specialization in China in response to trade liberalization. Using a panel of Chinese export data at the detailed commodity level over the period of 1988–2006, we show that China’s regional specialization follows a U-shaped pattern: both the interior and coastal regions diversify from 1988 to 1994 but specialize during the later reform period of 1994–2006. A theory of tariff reductions is proposed by constructing the Dornbusch–Fischer–Samuelson (1977) continuum of goods Ricardian model in a setup of two countries and three regions. The U-shaped pattern of specialization can be obtained from foreign tariff reductions followed by Chinese tariff reductions. This finding is supported by simulations, US–China trade policy review, and the pattern of China’s coast–inland wage ratio.

Suggested Citation

  • Hong, Chang, 2012. "Trade liberalization, wages, and specialization in China," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 561-577.
  • Handle: RePEc:eee:jjieco:v:26:y:2012:i:4:p:561-577
    DOI: 10.1016/j.jjie.2012.08.003
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    References listed on IDEAS

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    Keywords

    Trade liberalization; Non-traded goods; Wage inequality; Specialization; Ricardian model;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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