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Trade Liberalization And The Great Labor Reallocation

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  • Yuan Zi

Abstract

I examine how migration frictions shape the effects of trade policy by analyzing the impact of tariff reductions on labor allocation in China and the role of hukou‐based migration frictions. Trade liberalization induces significant labor reallocation, greater in regions with lower hukou frictions. Quantitatively, trade liberalization increases China's welfare by 0.72%. Abolishing the hukou system directly improves welfare by 1.75% but reduces gains from tariff reductions by 18% and amplifies negative distributional effects. In the process, I develop a novel measure of hukou‐related migration frictions.

Suggested Citation

  • Yuan Zi, 2025. "Trade Liberalization And The Great Labor Reallocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(2), pages 933-963, May.
    • Handle: RePEc:wly:iecrev:v:66:y:2025:i:2:p:933-963
    DOI: 10.1111/iere.12751
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