Magnification of the ‘China shock’ through the U.S. housing market

Yuan Xu, Hong Ma and Robert Feenstra

Review of International Economics, 2023, vol. 31, issue 5, 1864-1893

Abstract: The ‘China shock’ operated in part through the housing market, which is one reason why its impact was so large on the U.S. labor market. We add housing to a multi‐region multi‐sector model, with individuals choosing whether and where to work. Controlling for housing reduces the negative direct impact of import exposure on manufacturing employment by 26%–31%, with a significant magnification through the housing market. A variance decomposition analysis shows that the indirect effect of the China shock through the housing market contributes an added 11% to the variance in manufacturing employment as compared to the direct effect of import exposure. For manufacturing and construction employment combined, the indirect effect even outweighs the direct effect.

Date: 2023
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https://doi.org/10.1111/roie.12695

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Working Paper: Magnification of the ‘China Shock’ Through the U.S. Housing Market (2019)
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