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Magnification of the ‘China shock’ through the U.S. housing market

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  • Yuan Xu
  • Hong Ma
  • Robert Feenstra

Abstract

The ‘China shock’ operated in part through the housing market, which is one reason why its impact was so large on the U.S. labor market. We add housing to a multi‐region multi‐sector model, with individuals choosing whether and where to work. Controlling for housing reduces the negative direct impact of import exposure on manufacturing employment by 26%–31%, with a significant magnification through the housing market. A variance decomposition analysis shows that the indirect effect of the China shock through the housing market contributes an added 11% to the variance in manufacturing employment as compared to the direct effect of import exposure. For manufacturing and construction employment combined, the indirect effect even outweighs the direct effect.

Suggested Citation

  • Yuan Xu & Hong Ma & Robert Feenstra, 2023. "Magnification of the ‘China shock’ through the U.S. housing market," Review of International Economics, Wiley Blackwell, vol. 31(5), pages 1864-1893, November.
    • Handle: RePEc:bla:reviec:v:31:y:2023:i:5:p:1864-1893
    DOI: 10.1111/roie.12695
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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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