Labour market flexibility and domestic value‐added trade: Evidence from the hukou reform in China

Author:

Wang Wenxiao1ORCID,Lin Faqin2ORCID,Huan Fengning3,Li Yanyun4

Affiliation:

1. Wenlan Business School Zhongnan University of Economics and Law Wuhan China

2. College of Economics and Management, Academy of Global Food Economics and Policy China Agricultural University Beijing China

3. School of Economics Nankai University Tianjin China

4. School of Economics Hefei University of Technology Hefei China

Abstract

AbstractChinese manufacturing firms have seen an intriguing rise in domestic value‐added content in exports (DVAR) despite their deepening engagement in global value chains (GVCs) since 2001. This article investigates whether the rise of DVAR in China can be attributed to changes in labour market flexibility by using the staggered relaxation of Chinese hukou policies across cities and time as a quasi‐natural experiment. Using combined firm‐level data and transaction‐level trade data from 2000 to 2013, this article finds that the relaxation of labour market flexibility through hukou reform has significantly increased the domestic value‐added exports of Chinese firms. Firms exposed to hukou reform tend to allow for more employment adjustment and substitute domestic materials for imported intermediates, which raises the DVAR of Chinese manufacturing firms. This effect is more prominent for non‐SOE firms, foreign‐invested firms, processing firms, coastal firms and firms in the upstream sectors of GVCs.

Funder

National Natural Science Foundation of China

National Office for Philosophy and Social Sciences

Fundamental Research Funds for the Central Universities

Publisher

Wiley

Subject

Political Science and International Relations,Economics and Econometrics,Finance,Accounting

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