Globalization, Trade & Wages: What Does History tell us about China?

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, increased the demand for Chinese goods overseas, and increased the demand for unskilled workers producing these goods. These trends continued even after the war ended. We show that the timing of the rise in export prices is consistent with the observed decline in the skill premium in China. The skill-unskilled wage ratio flattened out during the 1910s and then fell by eight percent during the 1920s. We simulate the price shock of World War I using a general equilibrium factor-endowments model of trade and find evidence consistent with the observed fall in the skill premium in China during the 1920s.

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Acknowledgments

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