Trade induced technical change? The impact of Chinese imports on technology and employment

Abstract

Preliminary and Incomplete, December 30 th 2007 Despite popular belief among politicians and the public, the consensus amongst empirical economists is that trade has not been a major cause of increased wage inequality in advanced countries and the technological and institutional change are much more important. However, this consensus mainly uses data before the rise of China in the 1990s. In this paper we examine the impact of the growth of Chinese imports on a panel of over 30,000 establishments in 11 European countries. We find that Chinese import competition is associated with a significant increase in the propensity of establishments to adopt information technology. We also find that exposure to trade with China significantly increases the probability of establishment exit and reduces employment growth, but this effect is significant only for less IT intensive establishments. Despite these effects on the intensive and extensive margins, we calculate that trade with China still only accounts for a small proportion of the increase in IT intensity (around 6%) so does not overturn the conventional wisdom that trade is less important than technical change. We do find, however, that the job effects of Chinese imports are important, accounting for about a fifth of the fall in employment for the low-tech establishments.

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