Recently, the Center for International Finance and Economics Research (CIFER) of the National Institute of Financial Research at Tsinghua University hosted...Academic Symposium on "2022 International Trade Disputes and the Restructuring of Globalization"The event was successfully held.Assistant Professor, School of Economics and Management, East China Normal UniversityHe ChaoAttendDepend onCIFER Part-time Researcher、Associate Professor, School of International Economics and Trade, University of International Business and EconomicsMa JieHostTrade and social structureSub-forum Nine，Sharing with collaborators (see below) on the topic of《Why would a favorable trade shock be detrimental to you?》(Why Favorable Trade Shocks Can be Bad for You?）The article.
He Chao Dr. He Chao received his Ph.D. in Economics from the University of Wisconsin-Madison. He is currently an Assistant Professor at the School of Economics, Faculty of Economics and Management, East China Normal University. Dr. He's main research area is macroeconomics, with a particular focus on theoretical research in monetary and banking fields. His findings have been published in [Journal Name - not specified].Review of Economic Dynamics、Journal of Money、Credit, and Banking andJournal of Economcis Published in academic journals such as [Journal Name].
In sharing his article, Professor He Chao mentioned that the real-world context was that before China joined the WTO in 2000, the United States granted China Permanent Most Favored Nation (PNTR) status. For Chinese companies, this helped eliminate trade uncertainty and greatly improve terms of trade. Based on classical trade theory, favorable terms of trade can increase producer surplus, thus theoretically presenting a good opportunity for all Chinese companies. However, focusing on the reality of Chinese companies, it was found that workers located in inland and coastal areas experienced vastly different feelings about this improvement in terms of trade. Professor He Chao further illustrated this point with examples of furniture manufacturers and their workers in Guangzhou and Lanzhou. The initial purpose of this research was to explore the reasons behind this discrepancy.The empirical section of this article primarily explores the impact of trade shocks on firm output, incorporating the coastal region as an interaction term to differentiate between coastal and inland locations. It further employs multiple indicators, including output, value added, fixed asset investment, and labor employment, to measure output outcomes. The results consistently demonstrate that trade shocks have a significant negative effect on inland regions and a positive effect on coastal regions, indicating that the trade shock of the US granting China Most Favored Nation status has different effects on coastal and inland areas. The logic is that "the elimination of trade uncertainty provides favorable trade conditions for Chinese firms, thus increasing their willingness to invest and significantly boosting production capacity; and due to considerations of saving on land transportation costs in the trade process, firms are more inclined to relocate from inland areas to coastal regions."This article constructs a two-stage theoretical model. The first stage involves inland enterprises' investment decisions in coastal areas, which require incurring certain fixed costs. The second stage involves whether these enterprises hire labor and organize production under Most Favored Nation (MFN) treatment in the United States. During this period, inland enterprises incur iceberg costs in transportation, while coastal enterprises do not, thus incentivizing them to relocate to coastal areas. Through model derivation, the author proposes three assumptions regarding enterprise migration patterns: 1. Enterprises may relocate directly from inland to coastal areas. 2. Enterprises may partially relocate to coastal areas through fixed asset investment. 3. Inland enterprise entry decreases, while coastal enterprise entry increases. Therefore, the migration behavior of inland enterprises will adversely affect workers who remain inland for various reasons, leading to decreased income and other negative impacts.The authors also examined the existence of a migration effect from inland to coastal cities using firm-level data. A dummy variable was used to measure this migration; a firm located in an inland city in 1999 was assigned a value of 1 if it moved to a coastal city in 2007, and 0 otherwise. The results showed that the two regression coefficients using the dummy variable "High-Exposure" as the independent variable were significantly positive, demonstrating that a higher degree of trade policy shock would prompt firms in inland cities to migrate to coastal cities.Finally, the author summarizes the main conclusions of this paper. The decrease in trade uncertainty is a positive trade shock for businesses, prompting inland enterprises in my country to relocate to more geographically advantageous coastal areas to save on transportation costs. However, this also objectively means that workers "left behind" inland areas may be adversely affected. The author suggests providing more policy support to workers in inland areas affected by the impact, arguing that this aligns with my country's "Western Development Strategy" and other supportive policies.
Ouyang Difeng, Lecturer, School of International Economics and Trade, University of International Business and Economics This paper reviews and summarizes the article, noting its novel and interesting title, and offers suggestions regarding its data, model, and real-world characteristics. Regarding the data, firstly, the article's calculation of the impact of trade policy (exposure) uses either a simple arithmetic mean or a weighted average, each with different logic and regression results, warranting further investigation. It also explores the possibility of supplementing the study with quartile exposure data. Secondly, considering data reliability, it is worthwhile to extend the research period before China's accession to the WTO to 1998-2001.Furthermore, Professor Ouyang Difeng suggests that to better substantiate the narrative logic of this paper—namely, to verify that the coastal enterprises studied in this paper did indeed relocate from inland areas due to improved trade conditions—it is possible to analyze the investment source data in the business registration data of newly established coastal enterprises. Regarding the model, Professor Ouyang Difeng points out that while transportation costs decrease after enterprises relocate to coastal areas, labor costs may increase, and suggests further refining the model to account for this. In terms of the logical analysis, he suggests incorporating realities such as China's household registration policy and labor market frictions to explain why inland workers are negatively impacted by favorable trade conditions, and that the research content of this paper could be more focused on the title.
