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All-Around Trade Liberalization and Firm-Level Employment: Theory and Evidence from China


E2017009                                                    2017-10-09

Antonio Rodriguez-Lopez                Miaojie Yu

University of California, Irvine           Peking University


Chinese firms faced an all-around trade liberalization process during the early 2000s: lower trade barriers from other countries on Chinese final goods, and lower Chinese barriers on other countries' final goods and inputs. Using novel firm-level tariff data for trading Chinese manufacturing firms from 2000 to 2006, this paper disentangles the effects of each type of trade liberalization on Chinese firm-level employment. The exercise distinguishes firms by type---pure processing firm, ordinary non-importing exporter, or ordinary importing exporter---and productivity.  For all types of firms, reductions in Chinese and foreign final-good tariffs are associated with job destruction in low-productivity firms and job creation in high-productivity firms. In contrast, the net effect of a reduction in Chinese input tariffs is limited to job destruction in low-productivity ordinary exporters. To guide the interpretation of the results, we develop a heterogeneous-firm model with trade in both tasks and final goods that identifies the different forces through which each type of trade liberalization affects employment in each type of firm.

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