DP13122 Identifying Chinese Supply Shocks - Effects of Trade on Labor Markets

Author(s): Andreas M Fischer, Philip Saure
Publication Date: August 2018
Keyword(s): employment, Instrumental Variable, International Trade
JEL(s): F10
Programme Areas: International Trade and Regional Economics, Monetary Economics and Fluctuations
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13122

In a highly influential study, Autor, Dorn and Hanson (2013) analyze the effect of Chinese exports on the U.S. labor market. To identify causality, Chinese exports to the United States are instrumented with Chinese exports to other advanced economies, an identification strategy that relies on the absence of common demand shocks to all advanced economies. Our paper questions this identification assumption. We document that in the period between 1991 and 2007, sector-level exports from China grew parallel to those from other emerging market economies. This positive correlation is stronger for countries with a comparative advantage close to China's. We argue that these patterns are inconsistent with the view that China-speci c supply shocks dominated China's export growth. Adjusting the identification strategy in ADH, we find that the qualitative results from ADH survive but are smaller in magnitude.