All‐around trade liberalization and firm‐level employment: Theory and evidence from China

Chinese firms faced an all‐around trade liberalization process during the early 2000s: lower barriers from other countries on Chinese goods, and lower Chinese barriers on other countries' goods and inputs. This paper disentangles the effects of each type of trade liberalization on Chinese firm‐level employment. We find that reductions in Chinese and foreign final‐good tariffs are associated with job destruction in low and mid‐low productivity firms and job creation in high‐productivity firms. Chinese final‐good trade liberalization produces the largest firm‐level employment responses, whereas the employment effects of Chinese input‐trade liberalization are limited to job destruction in the least productive firms.