Working Paper: NBER ID: w26432
Authors: Yuan Xu; Hong Ma; Robert C. Feenstra
Abstract: The ‘China shock’ operated in part through the housing market, which is one reason why its impact was so large in the United States. We add housing to a multi-region monopolistic competition model, with individuals choosing whether and where to work. Controlling for housing reduces the negative coefficient of import exposure on manufacturing employment by 20-25%, with a significant indirect magnification through the housing market. Combining manufacturing and construction employment, the indirect effect of the China shock through the housing market explains one-fifth as much of the variance in employment as the direct effect of import exposure, with further employment impacts through independent fluctuations in the housing market.
Keywords: China; Trade Shock; Employment; Housing Market
JEL Codes: F14; F16; J23; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| China shock (F69) | employment (J68) |
| import exposure (Y60) | employment (J68) |
| real housing value (R31) | employment (J68) |
| China shock (F69) | housing value (R31) |
| housing market fluctuations (E32) | employment (J68) |