Recently, "How Do Households Adjust to Tariff Liberalization: Evidence from China's WTO Accession", a joint paper jointly written by Associate Professor Dai Mi, Huang Wei from National University of Singapore and Zhang Yifan from The Chinese University of Hong Kong, has been accepted for publication in the international top Journal of Development Economics.

Using micro household survey data, this paper examined how Chinese urban households responded to the labor market shock caused by tariff reductions. The paper found that after China's accession to the WTO, the import competition caused by the reduction of import tariffs has reduced the wage growth of some urban residents. Householders have partially hedged the negative impact of the labor market shock by adjusting the supply of labor, changing living arrangements, and adjusting consumption and saving. The study suggested that household co-decision making served as an "informal insurance policy" that can help mitigate the negative impacts of trade liberalization on specific groups.

Abstract

This paper investigates how households adjust to local labor market shocks caused by import tariff liberalization in China. Exploiting regional variation in the exposure to tariff cuts resulting from the WTO accession, we find that regions that initially specialized in industries facing larger tariff cuts experienced relatively larger wage declines. Households responded to the shock in several ways, including more female and old household members working, more young adults co-residing with parents, and households saving less. These findings suggest an insurance role of households against trade-induced labor market shocks.