Trade pattern’s transition and wage gap: evidence from China’s manufacturing

Abstract

Since 1990s, the main trade pattern in China’s manufacturing has changed from inter-industry trade to intra-industry trade along with a big expansion of wage gap between 27 sub-manufacturing in China. This paper shows how trade pattern shifting influences the wage gap by exploring the theory model of Feenstra and Hanson. The empirical analysis gets two major conclusions: (1) wherever the sub-manufacturing is mainly engaged in inter-industry trade or intra-industry trade, exports increase the wage gap while imports narrow it; (2) Commodity price fluctuation is the main mechanism through which trade patterns influence the wage gap in China which is indicated by the Stolper–Samuelson theorem.

Keywords:

• Inter-industry trade
• intra-industry trade
• price effect
• trade pattern
• wage gap

Notes

Disclosure statement

The authors report no conflicts of interest. The authors alone are responsible for the content and writing of this article.

Funding information

This work was supported by China's National Social Science Fund [grant number 12BJL028].

Notes

1 The average GL index of capital-intensive manufacturing increased from 0.64 in 1996 to 0.71 in2009. So did the technology-intensive manufacturing from 0.66 in 1996 to 0.69 in 2009.

2 Since 1970s, the ever-enlarging wage gap has been a prevailing phenomenon in developed countries such as the U.S. and Britain and in developing countries, including China, Chile, and Mexico as trade pattern evolves from inter-industry trade to intra-industry trade.

3 Leamer (1998) studies a small open economy who is the price receiver while Krugman (2000) studies a big open economy who can influence the international commodity price.

4 Skill premium is exactly as same as wage gap.

5 We get the similar result when we make the robustness test of the trade pattern by calculating the trade overlap index (Fontagné, Freudenberg, & Péridy, 1997) of the 27 sub-manufacturing which shows the division of the two groups is reasonable.

6 In 2006, the average yearly wage in tobacco manufacturing was 80,101 Yuan per labor, which increased the average yearly wage of inter-industry trade group to 22,208.67 Yuan per labor, 30% higher than it in the previous year.