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

Author(s): Andreas M Fischer, Philip Saure
Publication Date: August 2018
Date Revised: April 2019
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: cepr.org/active/publications/discussion_papers/dp.php?dpno=13122

In a seminal paper, Autor et al. (2013a) analyze the effect of Chinese exports on U.S. employment variables. To identify causality, Chinese exports to the United States are instrumented with Chinese exports to other advanced economies, an identificationn strategy that relies on the absence of common demand shocks to all advanced economies. Our paper first questions this identification assumption and then adjusts the reduced-form identification strategy in Autor et al. (2013a). In the first part, we document that China's sector-level export growth correlates positively with that of other emerging market economies around and after China's WTO accession. This positive correlation is inconsistent with the view that China-specific supply shocks dominated China's sectorial export growth. In a second part, we develop an identification strategy derived from a parsimonious structural model. Our findings validate the estimated negative effects of Chinese import penetration on U.S. labor markets in Autor et al. (2013a). However, important differences arise when decomposing the China-specific supply shock effects by gender, education, and (non) manufacturing sector.