IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp11428.html
   My bibliography  Save this paper

How Do Households Adjust to Trade Liberalization? Evidence from China's WTO Accession

Author

Listed:
  • Dai, Mi

    (Beijing Normal University)

  • Huang, Wei

    (National University of Singapore)

  • Zhang, Yifan

    (Chinese University of Hong Kong)

Abstract

We investigate the impacts of trade liberalization on household behaviors and outcomes in urban China, exploiting regional variation in the exposure to tariff cuts resulting from WTO entry. Regions that initially specialized in industries facing larger tariff cuts experienced relative declines in wages. Households responded to this income shock in several ways. First, household members worked more, especially in the non-tradable sector. Second, more young adults co-resided with their parents, and thus household size increased. Third, households saved less. These behaviors significantly buffered the negative wage shock induced by trade liberalization.

Suggested Citation

  • Dai, Mi & Huang, Wei & Zhang, Yifan, 2018. "How Do Households Adjust to Trade Liberalization? Evidence from China's WTO Accession," IZA Discussion Papers 11428, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11428
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp11428.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Petia Topalova, 2010. "Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 1-41, October.
    2. Costa, Francisco & Garred, Jason & Pessoa, João Paulo, 2016. "Winners and losers from a commodities-for-manufactures trade boom," Journal of International Economics, Elsevier, vol. 102(C), pages 50-69.
    3. Hanming Fang & Quanlin Gu & Wei Xiong & Li-An Zhou, 2016. "Demystifying the Chinese Housing Boom," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 105-166.
    4. Kyle Handley & Nuno Limão, 2018. "Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 5, pages 123-175, World Scientific Publishing Co. Pte. Ltd..
    5. Melvin Stephens, 2002. "Worker Displacement and the Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 504-537, July.
    6. David Card, 2005. "Is the New Immigration Really so Bad?," Economic Journal, Royal Economic Society, vol. 115(507), pages 300-323, November.
    7. Han, Jun & Liu, Runjuan & Ural Marchand, Beyza & Zhang, Junsen, 2016. "Market structure, imperfect tariff pass-through, and household welfare in Urban China," Journal of International Economics, Elsevier, vol. 100(C), pages 220-232.
    8. Eric V. Edmonds & Nina Pavcnik & Petia Topalova, 2010. "Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 42-75, October.
    9. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    10. George Borjas, 2013. "The analytics of the wage effect of immigration," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-25, December.
    11. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 20-43, July.
    12. Pablo D. Fajgelbaum & Amit K. Khandelwal, 2016. "Measuring the Unequal Gains from Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1113-1180.
    13. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    14. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    15. Federico Esposito & Costas Arkolakis & Rodrigo Adao, 2017. "Endogenous Labor Supply and the Gains from International Trade," 2017 Meeting Papers 1044, Society for Economic Dynamics.
    16. Porto, Guido G., 2006. "Using survey data to assess the distributional effects of trade policy," Journal of International Economics, Elsevier, vol. 70(1), pages 140-160, September.
    17. Hale Utar, 2016. "Workers Beneath the Floodgates: Low-Wage Import Competition and Workers' Adjustment," CESifo Working Paper Series 6224, CESifo.
    18. Hasan, Rana & Mitra, Devashish & Ural, Beyza P., 2007. "Trade Liberalization, Labor-Market Institutions, and Poverty Reduction: Evidence from Indian States," India Policy Forum, National Council of Applied Economic Research, vol. 3(1), pages 71-122.
    19. Shushanik Hakobyan & John McLaren, 2016. "Looking for Local Labor Market Effects of NAFTA," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 728-741, October.
    20. Haichao Fan & Yao Amber Li & Stephen R. Yeaple, 2015. "Trade Liberalization, Quality, and Export Prices," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 1033-1051, December.
    21. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
    22. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2005. "Trade, wages, and the political economy of trade protection: evidence from the Colombian trade reforms," Journal of International Economics, Elsevier, vol. 66(1), pages 75-105, May.
    23. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
    24. Justin R. Pierce & Peter K. Schott, 2016. "The Surprisingly Swift Decline of US Manufacturing Employment," American Economic Review, American Economic Association, vol. 106(7), pages 1632-1662, July.
    25. Brian, McCaig, 2011. "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access," Journal of International Economics, Elsevier, vol. 85(1), pages 102-113, September.
    26. Greg Kaplan, 2012. "Moving Back Home: Insurance against Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 120(3), pages 446-512.
    27. Miaojie Yu, 2015. "Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms," Economic Journal, Royal Economic Society, vol. 125(585), pages 943-988, June.
    28. Haichao Fan & Yao Amber Li & Stephen R. Yeaple, 2015. "Trade Liberalization, Quality, and Export Prices," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 1033-1051, December.
    29. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
    30. Brian K. Kovak, 2013. "Regional Effects of Trade Reform: What Is the Correct Measure of Liberalization?," American Economic Review, American Economic Association, vol. 103(5), pages 1960-1976, August.
    31. Han, Jun & Liu, Runjuan & Zhang, Junsen, 2012. "Globalization and wage inequality: Evidence from urban China," Journal of International Economics, Elsevier, vol. 87(2), pages 288-297.
    32. Olga Gorbachev, 2016. "Has the Increased Attachment of Women to the Labor Market Changed a Family's Ability to Smooth Income Shocks?," American Economic Review, American Economic Association, vol. 106(5), pages 247-251, May.
    33. Rafael Dix-Carneiro & Brian K. Kovak, 2015. "Trade Liberalization and the Skill Premium: A Local Labor Markets Approach," American Economic Review, American Economic Association, vol. 105(5), pages 551-557, May.
    34. Anjini Kochar, 1999. "Smoothing Consumption by Smoothing Income: Hours-of-Work Responses to Idiosyncratic Agricultural Shocks in Rural India," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 50-61, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Feicheng & Kis-Katos, Krisztina & Zhou, Minghai, 2020. "Trade Liberalization and the Gender Employment Gap in China," IZA Discussion Papers 13626, Institute of Labor Economics (IZA).
    2. Anders C. Johansson & Dan Liu, 2020. "Foreign direct investment and inequality: Evidence from China's policy change," The World Economy, Wiley Blackwell, vol. 43(6), pages 1647-1664, June.
    3. Wolfgang Keller & Hale Utar, 2022. "Globalization, Gender, and the Family," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 3381-3409.
    4. Zhenshan Yang & Yinghao Pan & Dongqi Sun & Li Ma, 2022. "Human Capital and International Capital Flows: Evidence from China," International Regional Science Review, , vol. 45(1), pages 74-107, January.
    5. Zhang, Yun & Liu, Yun & Zhang, Yifei & Chen, Xin, 2022. "Globalization blueprint and households’ fintech debt: Evidence from China’s One Belt One Road initiative," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 38-55.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dai, Mi & Huang, Wei & Zhang, Yifan, 2021. "How do households adjust to tariff liberalization? Evidence from China's WTO accession," Journal of Development Economics, Elsevier, vol. 150(C).
    2. Liu, Maggie Y., 2023. "How does globalization affect educational attainment? Evidence from China," International Economics, Elsevier, vol. 174(C), pages 138-159.
    3. Yu, Zhen & Wu, Xiaoling & Li, Meng & Guo, Rufei, 2021. "Import competition and the gender gap in labor force participation: Evidence from China," China Economic Review, Elsevier, vol. 69(C).
    4. Pinelopi K. Goldberg & Nina Pavcnik, 2016. "The Effects of Trade Policy," NBER Working Papers 21957, National Bureau of Economic Research, Inc.
    5. Dix-Carneiro, Rafael & Kovak, Brian K., 2019. "Margins of labor market adjustment to trade," Journal of International Economics, Elsevier, vol. 117(C), pages 125-142.
    6. Lin, Faqin & Long, Cheryl X., 2020. "The impact of globalization on youth education: Empirical evidence from China's WTO accession," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 820-839.
    7. Li, Bingjing, 2018. "Export expansion, skill acquisition and industry specialization: evidence from china," Journal of International Economics, Elsevier, vol. 114(C), pages 346-361.
    8. Rafael Dix-Carneiro & Brian K. Kovak, 2017. "Trade Liberalization and Regional Dynamics," American Economic Review, American Economic Association, vol. 107(10), pages 2908-2946, October.
    9. Dai, Mi & Huang, Wei & Zhang, Yifan, 2020. "Persistent effects of initial labor market conditions: The case of China's tariff liberalization after WTO accession," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 566-581.
    10. Nina Pavcnik, 2017. "The Impact of Trade on Inequality in Developing Countries," NBER Working Papers 23878, National Bureau of Economic Research, Inc.
    11. Facchini, Giovanni & Liu, Maggie Y. & Mayda, Anna Maria & Zhou, Minghai, 2019. "China's “Great Migration”: The impact of the reduction in trade policy uncertainty," Journal of International Economics, Elsevier, vol. 120(C), pages 126-144.
    12. Erten, Bilge & Leight, Jessica & Tregenna, Fiona, 2019. "Trade liberalization and local labor market adjustment in South Africa," Journal of International Economics, Elsevier, vol. 118(C), pages 448-467.
    13. Copestake, Alexander & Zhang, Wenzhang, 2023. "Inputs, networks and quality-upgrading: Evidence from China in India," China Economic Review, Elsevier, vol. 77(C).
    14. Fan, Haichao & Lin, Faqin & Lin, Shu, 2020. "The hidden cost of trade liberalization: Input tariff shocks and worker health in China," Journal of International Economics, Elsevier, vol. 126(C).
    15. Yuan Zi, 2016. "Trade Liberalization and the Great Labor Reallocation," IHEID Working Papers 18-2016, Economics Section, The Graduate Institute of International Studies.
    16. Connolly, Laura, 2022. "The effects of a trade shock on gender-specific labor market outcomes in Brazil," Labour Economics, Elsevier, vol. 74(C).
    17. Margaret S. McMillan & Brian McCaig, 2019. "Trade Liberalization and Labor Market Adjustment in Botswana," NBER Working Papers 26326, National Bureau of Economic Research, Inc.
    18. Zi, Yuan, 2020. "Trade Liberalization and the Great Labor Reallocation," CEPR Discussion Papers 14490, C.E.P.R. Discussion Papers.
    19. Yan Du & Yi Lu, 2018. "The Great Opening up and the Roadmap for the Future: The Story of China's International Trade," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 26(2), pages 68-93, March.
    20. Brian K. Kovak, 2013. "Regional Effects of Trade Reform: What Is the Correct Measure of Liberalization?," American Economic Review, American Economic Association, vol. 103(5), pages 1960-1976, August.

    More about this item

    Keywords

    trade liberalization; household adjustments; WTO;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp11428. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.