Publication Date

2014

Document Type

Book Chapter

Publication Title

Current Issues in International Trade: Methodologies and Development Implications for the World Economy

Abstract

Much has been made of the rise of China‘s economy and its emergence as a global trading power. Standard trade theory holds that comparative advantage is the basis for mutually beneficial exchange and, as such, it is the basis for international trade. In this chapter, we examine changes in labor supplies, capital stocks, and technology as possible explanations for the rise of China as an international trading power. Calibration of the Dornbusch-Fisher-Samuelson model suggests that China has gained comparative advantage relative to the US and to the cohort of high income countries considered in this study. Even though US production has increased since 1968 at both the extensive margin and at the intensive margin, China‘s emergence as a trading power may have adversely affected US labor. To discern the extent of labor market effects that may be attributable to increased trade, and particularly the effects of increased trade with China, we conduct a regression analysis using data for the years 1972-2007 to explore trade-induced changes in industry-level employment and average wages for both production workers and nonproduction workers in the US manufacturing sector. Among other findings, greater import penetration from China has negatively affected employment of both production workers and non-production workers, and increased exports to China have had a limited positive effect on the average wages of non-production workers.

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