Globalization, Trade & Wages: What Does History Tell Us About China?

60 Pages Posted: 25 Jan 2010

See all articles by Kris James Mitchener

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department; National Bureau of Economic Research (NBER); CEPR

Se Yan

Peking University - Guanghua School of Management

Date Written: January 2010

Abstract

Chinese imports and exports grew rapidly during the first three decades of the twentieth century as China opened up to global trade. Using a new data set on the factor-intensity of traded goods at the industry level, we show that Chinese exports became more unskilled-intensive and imports became more skill-intensive during these three decades. The exogenous shock of World War I dramatically raised the price of Chinese exports and increased the demand for these goods overseas and for unskilled workers producing these goods in China. When the war ended, trade costs declined, leading to a rise in China's terms of trade and further growth in China's export sector. Difference-in-differences regression estimates show that World War I boosted exports in China and did so substantially more for unskilled industries than skilled industries. We show that the observed decline in the skill premium in China is consistent with China's changing terms of trade. The skill-unskilled wage ratio flattened out during the 1910s and then fell by eight percent during the 1920s. We simulate the effects of World War I using a dynamic, general equilibrium factor-endowments model of trade, and demonstrate that an exogenous shock to the price of traded goods can produce a decline in the skill premium similar to what China experienced in the 1920s.

Suggested Citation

Mitchener, Kris James and Yan, Se, Globalization, Trade & Wages: What Does History Tell Us About China? (January 2010). NBER Working Paper No. w15679. Available at SSRN: https://ssrn.com/abstract=1541346

Kris James Mitchener (Contact Author)

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
408.554.4340 (Phone)
408.554.2331 (Fax)

HOME PAGE: http://lsb.scu.edu/~kmitchener/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CEPR ( email )

London
United Kingdom

Se Yan

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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