The impact of capital goods trade liberalization on regional labor market in China

Abstract

The impact of trade liberalization on regional employment dynamics remains a topic of ongoing debate and scrutiny. This study aims to provide a nuanced understanding by focusing specifically on the effects of imported capital goods trade. Our study analysis reveals that capital goods trade liberalization predominantly leads to a substitution effect between capital and labor, resulting in a reduction in overall regional employment levels. However, we also find complementary effects between capital and high-skilled labor, alongside substitution effects on low-skilled labor, which collectively influence the regional labor market's skill structure. Furthermore, our study identifies the heterogeneous spillover effects of capital goods trade liberalization on regional labor markets, varying across different regions and city scales. We argue that investing in region skill development resources can help align the workforce with global factors, fostering positive interaction between regions.