Working Paper: NBER ID: w15679
Authors: Kris James Mitchener; Se Yan
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.
Keywords: Globalization; Trade; Wages; China
JEL Codes: F15; F33; N25; N75
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in exports in unskilled industries (F66) | flattening out of skill premium (F66) |
| increase in exports in unskilled industries (F66) | decline in skill premium between 1920 and 1928 (N12) |
| World War I (N44) | Chinese exports (F14) |
| World War I (N44) | exports in unskilled industries (F66) |
| World War I (N44) | flattening out of skill premium (F66) |
| World War I (N44) | decline in skill premium between 1920 and 1928 (N12) |