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The "China shock" revisited: Insights from value added trade flows

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  • Jakubik, Adam
  • Stolzenburg, Victor

Abstract

We exploit a decomposition of gross trade flows into their value added components to reassess the relationship between increased imports from China and manufacturing jobs in US local labour markets following the seminal paper of Autor, Dorn, and Hanson (2013, ADH). Decomposed trade flows enable us to address identification and measurement issues inherent to gross trade data. In particular, it allows us to remove US value added in Chinese exports from the exposure measure which is mechanically correlated with the dependent variable and overstates the volume of the trade shock. In addition, the decomposition permits to correct for double counting, to remove primary and services inputs in manufacturing exports, and to assign competition to the upstream industry that supplied the value added rather than the final exporting industry. This further reduces the volume of the shock and improves the accuracy of the import exposure measure. Consequently, we find considerable differences in the pattern of regions that are most affected by the trade shock and show that imports from China can explain less of the decline in US manufacturing than what gross trade data would suggest. We then separate the shock into a China-driven domestic reform and a thirdcountry-driven value chain component, and find in line with ADH that the smaller, but still negative labour market effects are indeed China driven. Finally, we observe that the negative effects identified in ADH are not present in the 2008-2014 period, as labour market adjustment has largely concluded. The long time needed for adjustment may have been prolonged by the evolution of China's comparative advantage.

Suggested Citation

  • Jakubik, Adam & Stolzenburg, Victor, 2018. "The "China shock" revisited: Insights from value added trade flows," WTO Staff Working Papers ERSD-2018-10, World Trade Organization (WTO), Economic Research and Statistics Division.
  • Handle: RePEc:zbw:wtowps:ersd201810
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    References listed on IDEAS

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    1. Hanson, Gordon H. & Lind, Nelson & Muendler, Marc-Andreas, 2015. "The Dynamics of Comparative Advantage," CAGE Online Working Paper Series 252, Competitive Advantage in the Global Economy (CAGE).
    2. Zhi Wang & Shang-Jin Wei & Kunfu Zhu, 2013. "Quantifying International Production Sharing at the Bilateral and Sector Levels," NBER Working Papers 19677, National Bureau of Economic Research, Inc.
    3. repec:eee:eecrev:v:101:y:2018:i:c:p:479-504 is not listed on IDEAS
    4. Greenaway, David & Hine, Robert C & Milner, Chris, 1995. "Vertical and Horizontal Intra-industry Trade: A Cross Industry Analysis for the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(433), pages 1505-1518, November.
    5. Maximiliano Dvorkin & Fernando Parro & Lorenzo Caliendo, 2015. "The Impact of Trade on Labor Market Dynamics," 2015 Meeting Papers 1532, Society for Economic Dynamics.
    6. Shen, Leilei & Silva, Peri, 2018. "Value-added exports and U.S. local labor markets: Does China really matter?," European Economic Review, Elsevier, vol. 101(C), pages 479-504.
    7. Vicente Donoso & Víctor Martín & Asier Minondo, 2015. "Do Differences in the Exposure to Chinese Imports Lead to Differences in Local Labour Market Outcomes? An Analysis for Spanish Provinces," Regional Studies, Taylor & Francis Journals, vol. 49(10), pages 1746-1764, October.
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    More about this item

    Keywords

    value added trade; labor-market adjustment; local labor markets;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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