Discussion paper

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

In a seminal paper, Autor et al. (2013) estimate the effect of Chinese
exports on U.S. labor markets. To establish causality, they instrument
Chinese exports to the United States with Chinese exports to
other advanced economies, assuming that demand shocks to advanced
economies are uncorrelated. Our paper documents robust empirical
patterns that are inconsistent with this identifying assumption. Based
on a parsimonious structural model, we identify the part of sectoral
Chinese export growth that is driven by China-specific supply shocks.
An identification strategy based on our approach essentially preserves
the estimates from the reduced form regression in Autor et al. (2013).
However, in a general equilibrium model from Caliendo et al. (2019),
our identification of the China shock implies more pronounced and
more dispersed manufacturing employment losses and welfare gains.
Finally, our identification realigns the sectoral employment losses with
standard Heckscher-Ohlin theory.

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Citation

Fischer, A, P Herkenhoff and P Sauré (eds) (2018), “DP13122 Identifying Chinese Supply Shocks - Effects of Trade on Labor Markets”, CEPR Press Discussion Paper No. 13122. https://new.cepr.org/publications/dp13122-0