Tariff reductions and labor demand elasticities: evidence from Chinese firm-level data

Hitoshi Sato and Zhu Lianming

No 463, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: International production fragmentation has been a global trend for decades, becoming especially important in Asia where the manufacturing process is fragmented into stages and dispersed around the region. This paper examines the effects of input and output tariff reductions on labor demand elasticities at the firm level. For this purpose, we consider a simple heterogenous firm model in which firms are allowed to export their products and to use imported intermediate inputs. The model predicts that only productive firms can use imported intermediate inputs (outsourcing) and tend to have larger constant-output labor demand elasticities. Input tariff reductions would lower the factor shares of labor for these productive firms and raise conditional labor demand elasticities further. We test these empirical predictions, constructing Chinese firm-level panel data over the 2000--2006 period. Controlling for potential tariff endogeneity by instruments, our empirical studies generally support these predictions.

Keywords: China; Tariff; International trade; Labor market; Labor demand elasticities; Tariff reductions; Intermediate inputs (search for similar items in EconPapers)
JEL-codes: F14 F16 (search for similar items in EconPapers)
Date: 2014-03-01
New Economics Papers: this item is included in nep-bec, nep-int, nep-lab and nep-tra
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 463. 2014-03-01

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