Trade liberalization and the great labor reallocation

Arbeitspapier

The extent to which a country can benefit from trade openness crucially depends on its ease of reallocating resources. However, we know little about the role of domestic frictions in shaping the effects of trade policies. I address this question by analyzing the impact of tariff reductions on the spatial allocation of labor in China, and how this impact depends on migration frictions that stem from China's household registration system (hukou). I first provide reduced-form evidence that input trade liberalization has induced significant spatial labor reallocation in China, with a stronger effect in regions with less hukou frictions. Then, I construct and estimate a quantitative spatial model with input-output linkages and hukou frictions to examine the general equilibrium effects of tariff reductions and perform counterfactuals. The quantitative exercise shows that trade liberalization increases China's welfare by 0.63%. Abolishing the hukou system leads to a direct welfare improvement of 1.51%. Additionally, it increases gains from tariff reductions by 2% and alleviates its negative distributional consequences. In this process, I develop a novel measure of migration frictions associated with the hukou system.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Graduate Institute of International and Development Studies Working Paper ; No. HEIDWP18-2016

Classification and Topics

• Classification: Wirtschaft ; Neoclassical Models of Trade ; Trade Policy; International Trade Organizations ; Trade and Labor Market Interactions ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics ; Economic Development: Human Resources; Human Development; Income Distribution; Migration
• Subject: input trade liberalization ; spatial labor reallocation ; hukou frictions ; migration

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zi, Yuan
• Event: Veröffentlichung
• (who): Graduate Institute of International and Development Studies
• (where): Geneva
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/156134
• Last update: 10.03.2025, 11:42 AM CET