The Effects of World War I on the Chinese Textile Industry: Was the World’s Trouble China’s Opportunity?

Abstract

This paper uses an unexpected trade disruption due to World War I to study how a temporary reduction of imports affects the entry of industrial firms. I construct a new transportation network to capture counties’ exposure to this trade shock and compile panel data to examine the impact on China’s manufactured textile industry. I find that counties with greater prewar exposure to international trade experienced more firm entry after the war. The effect was delayed because the war simultaneously hindered machinery imports. Better access to finance also contributed to firm entry after the trade shock.