The ‘China Shock’ and middle-income economies: threats to industrialization and human capital formation

Ian Coxhead, Anna Strutt, Erwin Corong and Varan Kitayaporn

No 1008, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: Aided by an unprecedented increase in tertiary-educated workers and industrial policies, China has become a major exporter of medium-high skill-intensity manufactures. Consequently, global prices of many such goods have fallen, creating potential cross-border spillovers. Using a general equilibrium model of world economy and trade, we simulate effects in other middle-income industrializers, with particular focus on labor market adjustments. We find that skill-intensive sectors contract in almost every country. Low-skill wages rise and skill premia decline. Spillovers from China’s expansion diminish prospects for industrial upgrading elsewhere, and in the longer run may impede accumulation of human capital for more knowledge-intensive growth.

Keywords: Comparative; advantage|labor; market|skill; premium|China; shock|CGE (search for similar items in EconPapers)
JEL-codes: F16 F63 J24 O11 O5 (search for similar items in EconPapers)
Date: 2026-03
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Published in IDE Discussion Paper = IDE Discussion Paper, No.1008. 2026-03

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