Essays on Trade and China's Economy
This dissertation consists of two essays on trade and China’s economy. In the first essay, motivated by China’s recent economic slowdown, the relocation of labor-intensive industries, and an aging population, this paper examines how demographic forces shape China’s economic growth and trade patterns. Empirical analysis indicates that countries with a larger working-age population share experience higher productivity growth and a higher investment share of GDP. Building on these findings, I develop and calibrate an overlapping generations trade model with three key features: age-varying abilities to generate ideas that drive knowledge accumulation, age-varying saving behaviors affecting capital accumulation, and an Eaton-Kortum trade framework that includes both Heckscher-Ohlin and Ricardian comparative advantage. By comparing the baseline stationary equilibrium to a hypothetical one where China’s fertility and survival rates align with those of the rest of the world, I find that a higher fertility rate leads to higher productivity levels in the final year and results in greater consumption, as more workers generate more ideas. In contrast, a lower survival rate results in reduced productivity while also increasing consumption, driven by a decrease in desired savings due to the shorter lifespan. Overall, productivity is primarily driven by fertility, while capital per person is largely driven by the survival rate, as it affects desired savings. In the second essay, I investigate the decline in China’s trade share of GDP since 2007. To understand the underlying causes, I develop a multi-sector, multi-region Ricardian trade model to quantify the forces driving changes in China’s trade share of GDP from 2002 to 2015. The model features three main types of time-varying shocks: productivity shocks, trade cost shocks, and labor mobility cost shocks. These shocks affect China’s trade through comparative advantage and specialization. I calibrate the model and conduct structural accounting decompositions. The results indicate that changes in productivity and trade costs for both China and foreign regions together account for about 87% of the change in China’s trade share of GDP. From 2002 to 2007, the decrease in China’s international trade costs and the growth in foreign productivity were the main factors driving the increase in trade share. From 2007 to 2015, China’s productivity growth became the primary factor reducing the trade share. Moreover, in contrast to the earlier period, China’s international trade cost changes also contributed to the decline in its trade share.
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