All-Around Trade Liberalization and Firm-Level Employment: Theory and Evidence from China

Abstract

Chinese firms faced an all-around trade liberalization process during the early 2000s: lower barriers from other countries on Chinese goods, and lower Chinese barriers on other countries' goods and inputs. Using novel firm-level tariff data for trading Chinese manufacturing firms, this paper disentangles the effects of each type of trade liberalization on Chinese firm-level employment. For each firm type, reductions in Chinese and foreign final-good tariffs are associated with job destruction in low-productivity firms and job creation in high-productivity firms. In contrast, the net effect of reductions in Chinese input tariffs is limited to job destruction in lowproductivity ordinary exporters.