Trade with China and Skill Upgrading: Evidence from Belgian Firm Level Data

Abstract

We use Belgian firm level data over the period 1996-2007 to analyze the impact of imports from China and other low wage countries on firm growth, exit, and skill upgrading. We distinguish the impact of imports into two different channels: industry-level import competition and firm-level outsourcing. We find that imports from China are much more important than imports from other low-wage countries. Industry-level import competition from China reduced firm employment and induced skill upgrading. Import competition from China alone can explain around 30 percent of the total skill upgrading in Belgian manufacturing during 1996-2007. Our IV results confirm the ambiguous role of outsourcing in firm employment growth, but we also find that outsourcing to China will increase the relative employment of non-production workers and is beneficial for firm survival.

Keywords: import competition; outsourcing; China; skill upgrading

JEL Classification: F11, F14, F16