Seminar （Dept. of Trade Economics）

Theme：Evaluating the Welfare Effects of China's Processing Trade

Speaker：Jianpeng Deng (Shanghai University of Finance and Economics)

Time：2020-10-27 14:00

Address：Tencent Meeting

Language：Chinese/English

Tencent Meeting: https://meeting.tencent.com/s/U37U2BeOVYYL

ID: 299 565 543

Abstract：

This paper studies the implications of the import duty exemption associated with China’s processing trade on global welfare and international trade. We develop a multi-country general equilibrium model with firm heterogeneity to quantify these impacts. The counterfactual analysis based on the model reveals that the global trade-to-GDP ratio decreases by about 2.6% if China ends the duty exemption for processing imports. China’s real wage increases by 1% as a joint outcome of market size effect through the increased demand for domestic inputs and the deteriorated terms of trade. Almost all other economies experience welfare losses due to the deterioration in their terms of trade. The largest declines are in Taiwan, South Korea, and Japan, with reduction in real wages of 0.68%, 0.35% and 0.12% respectively. The United States and Germany also have a modest welfare loss of a 0.06% decrease in real wages.