## wp17122 - 12.3 percent of the overall increase over the sample period, in the median country-sector

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### Key findings
- "12.3 percent of the overall increase over the sample period, in the median country-sector."
- Using a similar empirical strategy, the authors "find adverse employment effects of Chinese imports in exposed country-industries."
- Combined interpretation: "these findings point to large gains from free trade, while underscoring the scope for a more active policy role in redistributing them, particularly by easing workers’ transition between jobs and industries."

### Research scope, classification, and data
- JEL Classification Numbers: F13, F14, F43, O43.
- Keywords: Trade, Productivity, Imports, Exports, Growth, Jobs, China.
- Authors’ E-Mail Addresses: jahn@imf.org; rduval@imf.org
- Sample period (data used): 1995–2011; back-of-the-envelope calculations focus on 1995–2007.
- Sample coverage: 18 sectors and 18 advanced countries.
- Dataset: country-sector-year TFP from EU KLEMS and World KLEMS combined with trade data from WIOD, covering 1995–2011, 18 sectors, 18 advanced countries.

### Data and empirical strategy
- Dependent variable: log TFP (ln TFP_ist).
- Key independent variables: country-sector imports from China and exports to China (each as ratio to total domestic output), lagged 1 year.
- Fixed effects: country-sector and country-year fixed effects included.
- Identification: 2SLS instrumentation to address reverse causality and measurement issues.
  - Import instrument: average imports from China in the same sector by other sample countries.
  - Export instrument: average exports to China in the same sector by other sample countries.
- Caution noted: IV estimates may still be contaminated by correlated demand or technology shocks across sample countries.

### Estimation results — productivity (TFP)
- Baseline 2SLS results (Table 1, column (6)):
  - A 1 percentage point increase in China’s import penetration in a given sector leads to a 0.9 percent increase in the TFP level of that sector.
  - A 1 percentage point increase in the ratio of exports to domestic output is associated with about a 11 percent increase in productivity in a given sector; table-based benchmark semi-elasticities used later are 0.9 (imports) and 10.3 (exports).
- Comparison with OLS:
  - 2SLS estimates are typically stronger than OLS, suggesting measurement bias leads OLS to underestimate the impact of trade on productivity.
  - Export-channel estimates may be upward-biased if common technology shocks across sample countries drove export growth to China.
- Robustness checks:
  - Restricting the sample to post-China WTO accession (post-2001) reduces the estimated impact of the export channel relative to the full sample.
  - Excluding EU member countries does not materially change the estimated import-channel coefficient.

### Estimation results — employment
- Replacing ln(TFP) with ln(total employment) in the baseline specification (Table 3, 2SLS):
  - A 1 percentage point increase in China’s import penetration in a given sector leads to about a 2 percent decline in the level of total employment in that sector.
  - A 1 percentage point increase in the ratio of exports to China to domestic output is associated with about a 5 percent increase in employment.
- Net effects vary across industries depending on exposure to imports vs exports from/to China.

### Quantification — back-of-the-envelope calculations (median country-sector, 1995–2007)
- Median outcomes:
  - Median TFP growth: 15.6 percent.
  - Median increase in imports from China to total domestic output: 1.03 percentage points.
  - Median increase in exports to China to total domestic output: 0.38 percentage points.
  - Exogenous portion of the increase (Autor, Dorn, and Hanson methodology): 67 percent for imports; 33 percent for exports.
- Using semi-elasticities from column (6) of Table 1 (imports = 0.9; exports = 10.3):
  - Exogenous variation in trade with China may have accounted for up to 12.3 percent of the total increase in TFP growth in the median country-sector over 1995–2007.
  - Converted to TFP level change: a total increase of 1.9 percent in the TFP level in the median country-sector over 1995–2007. (Calculation shown in text: (1.03*0.67)*1.1+(0.38*0.33)*7.7=1.9)
- Employment back-of-the-envelope:
  - Net impact of growing imports from and exports to China over 1995–2007: about -0.8 percent in the median country-sector.
  - Total employment increase over that period: about 37.5 percent.
  - The -0.8 percent net effect implies about 2 (=0.8/37.5) percent of the total increase in employment; net job effects vary by country-industry.

### Interpretation and policy implications
- Main findings:
  - Sizeable TFP gains from both exports to and imports from China in advanced economies.
  - Import-channel adverse labor market impacts can coexist with aggregate productivity gains.
  - Net employment effects are heterogeneous across industries.
- Policy recommendations and implications:
  - Need for "a more active policy role in redistributing them."
  - Specific policy focus: "easing workers’ transition between jobs and industries" to address adverse employment impacts in industries exposed to Chinese imports.
  - Warning that stagnating trade intensity due to China’s maturing integration into world trade will be a persistent drag on productivity growth in advanced economies.
  - Outright trade restrictions would reverse some of the large gains reaped over the past two decades.

*Source: wp17122 - 12.3 percent of the overall increase over the sample period, in the median country-sector.*

### 12.3 percent of the overall increase over the sample period, in the median country-sector. By

### wp17122 - 12.3 percent of the overall increase over the sample period, in the median country-sector. By

### Key findings
- "12.3 percent of the overall increase over the sample period, in the median country-sector."
- Using a similar empirical strategy, the authors "find adverse employment effects of Chinese imports in exposed country-industries."
- Combined interpretation: "these findings point to large gains from free trade, while underscoring the scope for a more active policy role in redistributing them, particularly by easing workers’ transition between jobs and industries."

### Research scope and classification
- JEL Classification Numbers: F13, F14, F43, O43.
- Keywords: Trade, Productivity, Imports, Exports, Growth, Jobs, China.
- Authors’ E-Mail Addresses: jahn@imf.org; rduval@imf.org

### Data and empirical strategy (section header preserved)
- Section: II. DATA AND EMPIRICAL STRATEGY

### Estimation results (section header preserved)
- Section: III. ESTIMATION RESULTS
- Subsections:
  - A. Regression results
  - B. Back-of-the-envelope calculation

### Policy implications and recommendations
- Large gains from free trade are identified.
- Need for "a more active policy role in redistributing them."
- Specific policy focus: "easing workers’ transition between jobs and industries" to address adverse employment impacts in industries exposed to Chinese imports.

### Additional notes from the source
- Acknowledgements: "We are grateful to seminar participants at Columbia University, the Fifth IMF-WB-WTO joint trade workshop, and the IMF Jobs, Growth and Structural Reforms seminar series. All errors and omissions are ours."
- Working paper series note: "IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management."

### Document structure (table of contents excerpts)
- I. INTRODUCTION — Page 4
- II. DATA AND EMPIRICAL STRATEGY — Page 5
- III. ESTIMATION RESULTS — Page 6
  - A. Regression results — Page 6
  - B. Back-of-the-envelope calculation — Page 7
- IV. CONCLUDING REMARKS — Page 8

*Source: wp17122 - 12.3 percent of the overall increase over the sample period, in the median country-sector. By*

### REFERENCES ____________________________________________________________  9

### wp17122 - REFERENCES

### Introduction: research question and context
- Protectionist sentiment is rising amid prolonged economic stagnation in advanced economies; rising trade with China has been blamed for job losses in exposed industries.
- Objective: quantify the effect of rising trade with China on productivity in advanced economies, distinguishing import and export channels and estimating sector-level productivity gains.
- Mechanisms:
  - Import channel: “pro-competition” and “imported input” effects (Helpman and Krugman, 1985; Grossman and Helpman, 1991).
  - Export channel: productivity gains from exporting via learning and competition (Balassa, 1978).
  - Reallocation: productivity increases via reallocation toward more productive firms (Melitz, 2003; Pavcnik, 2002).

### Data and empirical strategy
- Dataset: country-sector-year TFP from EU KLEMS and World KLEMS combined with trade data from WIOD, covering 1995–2011, 18 sectors, 18 advanced countries.
- Baseline regression (equation (1)): dependent variable log TFP (ln TFP_ist); independent variables are country-sector imports from China and exports to China (each as ratio to total domestic output) lagged 1 year; country-sector and country-year fixed effects included.
- Identification challenge: reverse causality and measurement issues addressed by 2SLS instrumentation.
- Instruments:
  - Imports from China in a given country-sector instrumented with average imports from China in the same sector by other sample countries.
  - Exports to China in a given country-sector instrumented with average exports to China in the same sector by other sample countries.
- Caution: IV estimates may still be contaminated by correlated demand or technology shocks across sample countries.

### Estimation results — productivity (TFP)
- Baseline 2SLS results (Table 1, column (6)):
  - A 1 percentage point increase in China’s import penetration in a given sector leads to a 0.9 percent increase in the TFP level of that sector.
  - A 1 percentage point increase in the ratio of exports to domestic output is associated with about a 11 percent increase in productivity in a given sector (column narrative); table-based benchmark semi-elasticities used later are 0.9 (imports) and 10.3 (exports).
- Comparison with OLS:
  - 2SLS estimates are typically stronger than OLS, suggesting measurement bias leads OLS to underestimate the impact of trade on productivity.
  - Export-channel estimates may be upward-biased if common technology shocks across sample countries drove export growth to China.
- Robustness checks (Table 2):
  - Restricting the sample to post-China WTO accession (post-2001) reduces the estimated impact of the export channel relative to the full sample, consistent with some upward bias in the baseline export estimate.
  - Excluding EU member countries does not materially change the estimated import-channel coefficient, suggesting biases from common EU demand shocks are limited.

### Estimation results — employment
- Replacing ln(TFP) with ln(total employment) in the baseline specification (Table 3, 2SLS):
  - A 1 percentage point increase in China’s import penetration in a given sector leads to about a 2 percent decline in the level of total employment in that sector.
  - A 1 percentage point increase in the ratio of exports to China to domestic output is associated with about a 5 percent increase in employment.
- Net effects vary across industries depending on exposure to imports vs exports from/to China.

### Quantification: back-of-the-envelope calculations
- Median country-sector outcomes over 1995–2007:
  - Median TFP growth: 15.6 percent.
  - Median increase in imports from China to total domestic output: 1.03 percentage points.
  - Median increase in exports to China to total domestic output: 0.38 percentage points.
  - Exogenous portion of the increase (using Autor, Dorn, and Hanson methodology): 67 percent for imports; 33 percent for exports.
- Using semi-elasticities from column (6) of Table 1 (imports = 0.9; exports = 10.3):
  - Exogenous variation in trade with China may have accounted for up to 12.3 percent of the total increase in TFP growth in the median country-sector over 1995–2007.
  - Converted to TFP level change: a total increase of 1.9 percent in the TFP level in the median country-sector over 1995–2007. (Calculation shown in text: (1.03*0.67)*1.1+(0.38*0.33)*7.7=1.9)
- Employment back-of-the-envelope:
  - Net impact of growing imports from and exports to China over 1995–2007: about -0.8 percent in the median country-sector.
  - Total employment increase over that period: about 37.5 percent.
  - The -0.8 percent net effect implies about 2 (=0.8/37.5) percent of the total increase in employment; net job effects vary by country-industry.

### Interpretation and policy implications
- Main findings:
  - Sizeable TFP gains from both exports to and imports from China in advanced economies.
  - Import-channel adverse labor market impacts can coexist with aggregate productivity gains.
  - Net employment effects are heterogeneous across industries.
- Policy recommendations and implications:
  - Critical role for policy in redistributing the gains from trade, with emphasis on easing the costs for workers transitioning across jobs and industries.
  - Stagnating trade intensity due to China’s maturing integration into world trade will be a persistent drag on productivity growth in advanced economies.
  - Outright trade restrictions would reverse some of the large gains reaped over the past two decades.

### Key numerical findings and statistics (preserved exactly as in source)
- Sample period: 1995–2011 (data used); key back-of-the-envelope calculations focus on 1995–2007.
- Sample coverage: 18 sectors and 18 advanced countries.
- 2SLS semi-elasticities used for benchmark: imports = 0.9; exports = 10.3 (column (6) of Table 1).
- Median country-sector TFP growth (1995–2007): 15.6 percent.
- Median change in imports from China to total domestic output (1995–2007): 1.03 percentage points.
- Median change in exports to China to total domestic output (1995–2007): 0.38 percentage points.
- Exogenous share of import increase: 67 percent; exogenous share of export increase: 33 percent.
- Contribution of exogenous trade variation to TFP growth: up to 12.3 percent of the total increase in TFP growth (equivalent to 1.9 percent increase in TFP level).
- Employment effects (2SLS): 1 percentage point increase in import penetration → about a 2 percent decline in employment; 1 percentage point increase in exports to China → about a 5 percent increase in employment.
- Net median employment impact (1995–2007): about -0.8 percent; total employment increase: about 37.5 percent; implied share = 2 (=0.8/37.5) percent.

*Source: wp17122 - REFERENCES (IMF Working Paper content provided).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2017/wp17122.pdf_