Effects of expanding imports on urban manufacturing employment: Evidence from China

Abstract

Full employment is important to promote the high-quality development of the urban economy. Using urban-level data on China from 2004 to 2018, we analyse the effects and mechanism of expanding imports on urban manufacturing employment. We use the Guiding Opinions on Strengthening Import to Promote Balanced Development of Foreign Trade issued by the China State Council in 2012 as a natural experiment to solve the endogeneity problem. We find that expanding imports significantly increases urban manufacturing employment. This conclusion is still robust after a series of robustness tests. Further mechanism tests reveal that productivity improvements and upgrades to product quality from expanding imports can explain increased urban manufacturing employment. The results of the heterogeneity analysis show that expanding imports promote manufacturing employment in large and medium-sized cities but not small cities. Expanding imports increases employment in manufacturing in cities in different regions, with the largest effects on eastern cities, the second largest effects on western cities, and the smallest effects on central cities. These results suggest that expanding imports is an effective channel for increasing employment.