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Trade liberalization and wages: Evidence from the closer economic partnership arrangement between mainland China and Hong Kong

Yonghong Zhou, Xian Zheng and Ziqing Yuan

Research in International Business and Finance, 2022, vol. 61, issue C

Abstract: This paper studies the impact of tariff cuts on workers’ wages in a single labor market by examining the Closer Economic Partnership Arrangement (CEPA) trade liberalization, in which China unilaterally eliminated hundreds of tariffs on Hong Kong’s goods in 2004. Utilizing five Hong Kong censuses from 1996 to 2016, we find consistent result that a one-sided tariff concession leads to an increase in the monthly wage of affected workers, averaging between 5.75% and 6.84%. Moreover, we explore the possibility that the effects of exposure to CEPA may be heterogeneous along several dimensions. The workers who benefited the most were more educated, in higher-skilled occupations, Mandarin-speaking, near retirement, or just starting their careers. Surprisingly, we found no increase in employment in the treated industries. We conclude that tariff cuts’ wage impact and, hence, their impact on wage inequality, depend on the local labor market composition and structure.

Keywords: Trade liberalization; FTAs; Wage; Inequality; CEPA (search for similar items in EconPapers)
JEL-codes: F16 J31 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.ribaf.2022.101653

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